A Company Has the Choice of Either Selling 1,000 Defective

Multiple Choice

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?

A) Neither sell nor rebuild because both alternatives produce a loss. Instead, the company should store the units permanently.
B) Scrap the units.
C) Sell the units as scrap.
D) Rebuild the units.
E) It does not matter because both alternatives have the same result.