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. If the company rebuilds the units, rather than selling them as scrap, what is the incremental impact on income?

A) Income will increase by $8,000.
B) Income will decrease by $500.
C) Income will decrease by $4,500.
D) Income will increase by $4,000.
E) Income will increase by $500.