3.12 2 A company with excess capacity must decide between scrapping or reworking units that do not pass inspection. The company has 16,000 defective units that cost $5.30 per unit to manufacture. The units can be a) sold as is for $3.40 each, or b) reworked for $4.90 each and then sold for the full price of $8.70 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? (Enter costs and losses as negative values.) points 01:25:01 Sales of scrap units Sale as Scrap $ Rework 54,400 Sales of reworked units $ 139,200 Cost to rework units (78,400) eBook Incremental income (loss) $ 54,400 $ 60,800 References The company should: rework Varto Company has 12,600 units of its sole product in inventory that it produced last year at a cost of $33 each. This year's model is superior to last year's, and the 12,600 units cannot be sold at last year's regular selling price of $36 each. Varto has two alternatives for these items: (1) they can be sold to a wholesaler for $8 each or (2) they can be processed further at a cost of $272,500 and then sold for $29 each. Should Varto sell the products as is or process further and then sell them? INCREMENTAL REVENUE AND COST OF ADDITIONAL PROCESSING Revenue if processed further Revenue if sold as is Incremental revenue 0 Incremental net income(Loss) $ 0 The company should: Xinhong Company is considering replacing one of its manufacturing machines. The machine has a book value of $41,000 and a remaining useful life of five years, at which time its salvage value will be zero. It has a current market value of $51,000. Variable manufacturing costs are $33,900 per year for this machine. Information on two alternative replacement machines follows. Cost Variable manufacturing costs per year Alternative A $124,000 22,900 Alternative B $118,000 10,100 Calculate the total change in net income if Alternative A, B is adopted. Should Xinhong keep or replace its manufacturing machine? If the machine should be replaced, which alternative new machine should Xinhong purchase? Complete this question by entering your answers in the tabs below. Alternative A Alternative B Xinhong Purchase Calculate the total change in net income if Alternative A is adopted. (Cash outflows should be indicated by a minus sign.) ALTERNATIVE A: INCREASE OR (DECREASE) IN NET INCOME Cost to buy new machine Cash received to trade in old machine Reduction in variable manufacturing costs Total change in net income $ 0 Calculate the total change in net income if Alternative A, B is adopted. Should Xinhong keep or replace its manufacturing machine? the machine should be replaced, which alternative new machine should Xinhong purchase? Complete this question by entering your answers in the tabs below. Alternative A Alternative B Xinhong Purchase Calculate the total change in net income if Alternative B is adopted. (Cash outflows should be indicated by a minus sign.) ALTERNATIVE B: INCREASE OR (DECREASE) IN NET INCOME Cost to buy new machine Cash received to trade in old machine Reduction in variable manufacturing costs Total change in net income $ 0 Alternative A Alternative B Xinhong Purchase Should Xinhong keep or replace its manufacturing machine? If the machine should be replaced, which alternative new machine should Xinhong purchase? Which option should Xinhong choose? [The following information applies to the questions displayed below.] Suresh Co. expects its five departments to yield the following income for next year. Sales Expenses Dept. M $ 79,000 Dept. N $ 41,000 Dept. 0 $72,000 Dept. P $60,000 Dept. T $ 40,000 Total $ 292,000 Avoidable Unavoidable 15,800 43,600 20,000 20,000 48,600 148,000 56,600 19,800 5,400 46,600 18,200 146,600 Total expenses Net income (loss) 72,400 $ 6,600 63,400 $(22,400) 25,400 66,600 66,800 294,600 $ 46,600 $ (6,600) $(26,800) $ (2,600) Recompute and prepare the departmental income statements (including a combined total column) for the compan each of the following separate scenarios. 1) Management eliminates departments with expected net losses. DEPARTMENTS WITH EXPECTED NET LOSSES ELIMINATED Sales Expenses: Avoidable Unavoidable Dept. M Dept. N Dept. O Dept. P Dept. T Total $ 79,000 $ 0 $ 72,000 $ 0 $ 0 $ 151,000 15,800 0 20,000 0 0 35,800 56,600 19,800 5,400 46,600 18,200 146,600 Total expenses 72,400 19,800 25,400 46,600 18,200 182,400 Not income (local 6.600 (10.8001 16.600 16 6001 (18.2001 (31 100)