Chang Industries Has 2,000 Defective Units of Product That Already

question 122

Multiple Choice

Chang Industries has 2,000 defective units of product that already cost $14 each to produce.A salvage company will purchase the defective units as is for $5 each.Chang's production manager reports that the defects can be corrected for $6 per unit,enabling them to be sold at their regular market price of $21.The $14 per unit is a:

• A)Incremental cost.
• B)Sunk cost.
• C)Out-of-pocket cost.
• D)Opportunity cost.
• E)Period cost.

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Definitions:

Freight Charges

Costs associated with transporting goods from one place to another, often paid by the buyer or seller depending on terms of sale.

Perpetual Inventory System

An inventory tracking system that updates item balances after each purchase or sale, providing a continuous record of inventory.

Merchandise Inventory

Products that a business has in stock and intends to sell to its customers as part of its commercial operations.

Inventory Shrinkage

The loss of products between point of manufacture or purchase from supplier and point of sale, often due to theft, damage, or errors.