A company must decide between scrapping or reworking units that do not pass inspection. The company has 10,000 defective units that have already cost $132,000 to manufacture. The units can be sold as scrap for $34,000 or reworked for $48,000 and then sold for $94,000. (a) Prepare a scrap or rework analysis of income effects. (b) Should the company sell the units as scrap or rework them?

Varto Company has 12,200 units of its product in inventory that it produced last year at a cost of $150,000. This years model is better than last years, and the 12,200 units cannot be sold at last years normal selling price of $40 each. Varto has two alternatives for these units: (1) They can be sold as is to a wholesaler for $97,600 or (2) they can be processed further at an additional cost of $251,800 and then sold for $341,600. (a) Prepare a sell as is or process further analysis of income effects. (b) Should Varto sell the products as is or process further and then sell them?