Patrick Corporation Inadvertently Produced 10,000 Defective Personal Radios

question 33

Multiple Choice

Patrick Corporation inadvertently produced 10,000 defective personal radios. The radios cost $8 each to produce. A salvage company will purchase the defective units as they are for $3 each. Patrick's production manager reports that the defects can be corrected for $5 per unit, enabling them to be sold at their regular market price of $12.50. Patrick should:

• A) Sell the radios for $3 per unit.
• B) Correct the defects and sell the radios at the regular price.
• C) Sell the radios as they are because repairing them will cause their total cost to exceed their selling price.
• D) Sell 5,000 radios to the salvage company and repair the remainder.
• E) Throw the radios away.

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Definitions:

Default Risk

The risk that a borrower will not make the required payments on a debt.

Trade Credit

An arrangement where a buyer can purchase goods on account without paying cash upfront, with payment to the seller due at a later date.

Inventory Obsolescence

Refers to the reduction in the value of inventory items due to them becoming outdated, no longer useful, or unsalable.

Opportunity Cost

The expense associated with choosing not to pursue the second-best option during decision-making.