A company has 33,000 units of its sole product that it produced last year at a cost of $71 each. This year's model is superior to last year's and the 33,000 units cannot be sold for their regular selling price of $127 each. The company has two alternatives for these items: (1) they can be sold to a wholesaler for $45 each, or (2) they can be reworked at a total cost of $700,000 and then sold for $53 each. The company has enough idle capacity to rework these items without affecting any new production. Which choice would increase the company's profits the most?

Scrap Re-work

Sales $45 x 33,000=1,485,000 $53 x 33,000 = 1,749,000

Reworking Costs ---- 700,000

Net Effect $1,485,000 $1,049,000