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Walloon Company produced 150 defective units last month at a unit manufacturing cost of $30. The defective units were discovered before leaving the plant. Walloon 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. What is the total relevant cost of reworking the defective units? a. $2,250 b. $3,000 c. $4,500 d. $6,750

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Chapter
Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 17, Problem 19E
Textbook Problem
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Walloon Company produced 150 defective units last month at a unit manufacturing cost of $30. The defective units were discovered before leaving the plant. Walloon 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. What is the total relevant cost of reworking the defective units?

  1. a. $2,250
  2. b. $3,000
  3. c. $4,500
  4. d. $6,750

To determine

Ascertain the total relevant cost of reworking the defective units.

Explanation of Solution

Tactical decision making: Tactical decision making is a process in which the company can choose the correct alternative based on the profitability. In tactical decision making, offer price of a product is compared with the normal selling price and offer price less than the normal selling price of product is considered as the idle capacity for decision making.

In this case, the manufacturing costs for defective units of $30 is a irrelevant cost for the selling or rework decision, because the manufacturing cost of defective units is a past cost and it does not create any impact on the future decision. Hence, company should consider the rework cost of $15 per unit as a relevant cost...

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Chapter 17 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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