A Company Has the Choice of Either Selling 1,000 Defective

question 23

Multiple Choice

A company has the choice of either selling 1,000 defective units as scrap or rebuilding them. The company could sell the defective units as they are for $4.00 per unit. Alternatively, it could rebuild them with incremental costs of $1.00 per unit for materials, $2.00 per unit for labor, and $1.50 per unit for overhead, and then sell the rebuilt units for $8.00 each. If the company rebuilds the units, what is the impact on income?

• A) Income will increase by $4,000.
• B) Income will increase by $500.
• C) Income will decrease by $4,500.
• D) Income will decrease by $500.
• E) Income will increase by $8,000.

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Definitions:

Inelastic

Describes demand that is relatively unresponsive to price changes, meaning the percentage change in quantity demanded is smaller than that in price.

Consumers

Individuals or organizations that use economic goods and services generated within the economy, directly affecting demand trends and market dynamics.

Corporate Taxes

Taxes levied by governments on the income or profit of corporations and businesses.

Profits

The financial gain obtained when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity.