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

question 63

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

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Definitions:

Relevant Information

Information that is applicable and helpful in making a decision, typically due to its timeliness, accuracy, and context.

Salaried Manager

An employee who receives a fixed compensation for their work over a period, typically annually or monthly, regardless of hours worked.

Incentivize

To provide motivation or encouragement to someone by offering rewards or incentives.

Franchise

A licensing arrangement granting an individual or group the rights to market a company's goods or services within a certain territory.