A Company Must Decide Between Scrapping or Rebuilding Units That

question 17

Essay

A company must decide between scrapping or rebuilding units that do not pass inspection. The company has 15,000 such units that cost $6 per unit to manufacture. The units were built to satisfy a special order, which must still be satisfied if the defective units are scrapped. The units can be sold as scrap for $2.50 each or they can be reworked for $4.50 each and sold for the full price of $9.00 each. If the units are sold as scrap, the company will have to build 15,000 replacement units and sell them at the full price.
Required:
(1) What is the net return from selling the units as scrap?
(2) What is the net return from reworking and selling the units?
(3) Should the company sell the units as scrap or rework them?

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Definitions:

Provide Service

The act of offering assistance, support, or benefits to meet the needs or interests of others.

Refer Client

The action of directing a client to another professional or service for additional assistance or specialized support.

Service Plans

Detailed proposals for service delivery tailored to an individual's or population's specific needs, outlining objectives, strategies, and actions to be taken.

Specific Times

Distinct or precise moments or periods designated for activities or events.