Rosa Company produced 1,100 defective phones due to a production error. The phones had cost $66,000 to produce. A salvage company will buy the defective phones as scrap for $42,900. It would cost Rosa $96,800 to rework the phones. If the phones are reworked, Rosa could sell them for $147,400.
(a) Prepare a scrap or rework analysis of income effects.
(b) Should Rosa scrap or rework the phones?
(a) Scrap or Rework Analysis
Scrap
Rework
Revenue from scrapped/reworked units
Cost of reworked units
Income
(b) The company should