Castagna Also Observes That Reworking a Defective Product Consumes More

Essay

Castagna also observes that reworking a defective product consumes more labor time than making a unit from scratch. As a result, for every three units reworked, Mussell forgoes the production and sale of two units.
Required:
(a) Do you agree with Julie King that it is cheaper to scrap than rework a defective unit? Show your computations.
(b) How can the cost information generated by Castagna be useful in reducing the number of defectives?
Julie King, the production manager of Mussell Corporation is frustrated by the company's policy of not scrapping defective units but reworking them. She has pointed out several times to senior management that some units are beyond rework and should be scrapped. According to her, in most cases, it would be cheaper to scrap and build a new unit from scratch rather than trying to rework a defective unit. However, Paul Oasis, the CEO, is not convinced. She wants her controller, Mandie Castagna, to gather some information.
After researching the problem, Castagna provides the following information: