A Company Has the Choice of Either Selling 600 Defective

question 103

Multiple Choice

A company has the choice of either selling 600 defective units as scrap or rebuilding them. The company could sell the defective units as they are for $2.00 per unit. Alternatively, it could rebuild them with incremental costs of $0.60 per unit for materials, $1.00 per unit for labor, and $0.80 per unit for overhead, and then sell the rebuilt units for $5.00 each. What is the amount of incremental income (loss) from rebuilding?

• A) $3.00 per unit.
• B) $(3.00) per unit.
• C) $7.00 per unit.
• D) $(0.60) per unit.
• E) $0.60 per unit.

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Definitions:

Total Surplus

The sum of consumer surplus and producer surplus, representing the total net benefit to society from the production and consumption of goods and services.

Producer Surplus

Producer surplus is the difference between what producers are willing to accept for a good or service versus what they actually receive, reflecting extra benefit.

Complements In Consumption

Goods that are often used together, where the increase in demand for one leads to an increase in demand for the other.

Supply Curve

A graph showing the relationship between the price of a good and the quantity of the good that producers are willing to sell at that price.