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StarZinc Company produced 200 defective units last month at a unit manufacturing cost of $50. The defective units were discovered before leaving the plant. StarZinc can sell them as is for $35 or can rework them at a cost of $40 and sell them at the regular price of $100. The total relevant cost of reworking the defective units is:______.
a. $7,800.
b. $5,000.
c. $8,500.
d. $9,100.

Answer :

ayokenny2001

Answer:

See below

Explanation:

The cost of producing the defective units is irrelevant to the decision as to rework or to sell the defective units

Option 1

Rework

Sales revenue from sales (200 × $100) = $20,000

Relevant cost 40 × 200

$8,000

Net cash flow

$12,000

Option 2

Outright sale

Revenue from outright sales $35 × 200

$7,000

Starzinc should rework the defective units at it will produce a net cash flow of $12,000

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