Ahngram Corp

Multiple Choice

Ahngram Corp. has 1,000 defective units of a product that cost $3 per unit in direct costs and $6.50 per unit in indirect cost when produced last year. The units can be sold as scrap for $4 per unit or reworked at an additional cost of $2.50 and sold at full price of $12. The incremental net income (loss) from the choice of reworking the units, versus selling them as scrap, would be:

A) $2,500 higher if the units are reworked.
B) $5,500 higher if the units are reworked.
C) $4,000 higher if the units are reworked.
D) $2,500 lower if the units are reworked.
E) $12,000 higher if the units are reworked.