Question

Signal mistakenly produced 1,450 defective cell phones. The phones cost $64 each to produce. A salvage company will buy the defective phones as they are for $32 each. It would cost Signal $82 per phone to rework the phones. If the phones are reworked, Signal could sell them for $148 each. Assume there is no opportunity cost associated with reworking the phones. Compute the incremental net income from reworking the phones.

Answer 1

Incremental income from reworking the phone is $49,300

Step-by-step explanation:

Scrap Rework

Sales $46,400 $214,600

(32 * 1,450) (148 * 1,450)

- Rework costs 0 $118,900

(82 * 1,450)

Profit $46,400 $95,700

Incremental income from reworking the phone

= $95,700 - $46,400

= $49,300