Question

Pasha Company produced 50 defective units last month at a unit manufacturing cost of $30. The defective units were discovered before leaving the plant. Pasha can sell them "as is" for $20 or can rework them at a cost of $15 and sell them at the regular price of $50. Which of the following is not relevant to the sell-or-rework decision?

a. $20 selling price of defective units
b. $50 regular selling price
c. $30 manufacturing cost
d. $15 for rework
e. All of these choices are relevant.

Answer 1

Answer:

The correct answer is : " c. $30 Manufacturing cost".

Explanation:

According to the scenario given above, $30 which is the manufacturing cost is not relevant to the sell-or-rework decision as the company may suffer a loss on the sale of goods.

Reworking on the defective units for $30 will lead to a manufacturing of $30 (previous manufacturing cost) plus reworking cost (current $30) which is total of $60. Thus, it seems to be a loss.