A company has the choice of either selling 1,000 defective units as scrap or rebuilding them. The company could sell the defective units as they are for $4.00 per unit. Alternatively, it could rebuild them with incremental costs of $1.00 per unit for materials, $2.00 per unit for labor, and $1.50 per unit for overhead, and then sell the rebuilt units for $8.00 each. What should the company do?

Multiple Choice

• Sell the units as scrap.
• Rebuild the units.
• It does not matter because both alternatives have the same result.
• Neither sell nor rebuild because both alternatives produce a loss. Instead, the company should store the units permanently.
• Throw the units away.