A Company Has the Choice of Either Selling 600 Defective

question 122

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 revenue from rebuilding?

• A) $0.60 per unit.
• B) $7.00 per unit.
• C) $2.40 per unit.
• D) $5.00 per unit.
• E) $3.00 per unit.

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Definitions:

Marginal Costs

The expense incurred from the manufacture of an extra single product or service unit.

Total Cost

All expenditures related to the manufacture of goods or provision of services, integrating both unchanging and dynamic costs.

Total Variable Cost

the overall cost that varies directly with the level of production or output.

TC

Typically refers to "Total Cost," which is the complete cost of production including both fixed and variable costs.