Question - A company must decide between scrapping or reworking units that do not pass inspection. The company has 10.000 defective units that cost $5.60 per unit to manufacture. The units can be sold as is for $3.40 each, or they can be reworked for $4.90 each and then sold for the full price of $9.00 each. If the units are sold as is, the company will be able to build 10,000 replacement units at a cost of $5.60 each, and sell them at the full price of $9.00 each.
What is the incremental income from selling the units as scrap and reworking and selling the units? Should the company sell the units as scrap or rework them?