Question
Sandlewood Company has 15,000 units of its sole product that it produced last year at a cost of $43 each. This year's model is superior
Sandlewood Company has 15,000 units of its sole product that it produced last year at a cost of $43 each. This year's model is superior to last year's and the 15,000 units cannot be sold for their regular selling price of $80 each. Sandlewood has two alternatives for these items: (1) they can be sold to a wholesaler for $30 each, or (2) they can be reworked at a total cost of $400,000 and then sold for $60 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?
A) | Reworking, because profit will increase by $500,000 more than scrapping. |
B) | Scrapping, because profit will increase by $450,000 more than reworking. |
C) | Reworking, because profit will increase by $50,000 more than scrapping. |
D) | Scrapping, because profit will increase by $50,000 more than reworking. |
E) | Reworking because profit will increase by $450,000 more than scrapping. |
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