MC Qu. 47 Chang Industries has ... Chang Industries has 1,400 defective units of product that have already cost $13.40 each to produce. A salvage company will purchase the defective units as they are for $4.40 each. Chang's production manager reports that the defects can be corrected for $6.60 per unit, enabling them to be sold at their regular market price of $19.80. The incremental income or loss on reworking the units is:

Incremental income = $12,320

Explanation:

Giving the following information:

Units = 1,400

A salvage company will purchase the defective units as they are for $4.40 each

Process further = $6.6 per unit and sell for $19.8

We need to calculate the effect on the income of both options and select the most profitable.

Sell as-is:

Effect on income = 1,400*4.4 = $6,160

Process further:

Effect on income = 1,400 * (19.8 - 6.6) = $18,480

It is more profitable to rework the units and sell for $19.8 each.

Incremental income = 18,480 - 6,160 = $12,320