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Question
Sandlewood Company has 15,000 units of its sole product that it produced last year at a cost of $43 each. This years model is superior to last years 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 companys 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.
Answer
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