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

question 91

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. What should the company do?

• A) Neither sell nor rebuild because both alternatives produce a loss. Instead, the company should store the units permanently.
• B) Scrap the units.
• C) Sell the units as scrap.
• D) Rebuild the units.
• E) It does not matter because both alternatives have the same result.

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Definitions:

SEC

The U.S. Securities and Exchange Commission, a federal agency responsible for enforcing federal securities laws and regulating securities industry participants.

Operations

The day-to-day activities carried out by a business to generate earnings, involving production, sales, and service provision.

Funded

Funded refers to a financial state where a project, account, or obligation has sufficient reserved resources or capital to cover expenses or liabilities.

SEC

The Securities and Exchange Commission is a U.S. federal agency that oversees securities transactions, activities of financial professionals, and ensures that investment markets operate fairly and transparently.