Chosa Corp. manufactured 900 engines that were defective. The per unit manufacturing costs of the engines...

Chosa Corp. manufactured 900 engines that were defective. The per unit manufacturing costs of the engines were

Direct Materials. 2,700 $/ unit

DL. 1,900 $/u

VMOH. 1,100 $/u

fixed overhead. 3,600 $/u

The engines normally sell for $15,700 each. the company can rework the engines, which will cost $1,400 per unit for direct materials , $2,100 per unit for direct labor and $950 per unit for variable manufactuing overhead alternatively the company could sell rhe engine “as is “ for 11,400 each.

Required: What should Chosa Corp do to maximize for profits?

Expert Solution

	Incremental Revenue

	900 units x ( $ 15700 - $ 11400)		$ 3,870,000.00

Less:	Incremental Costs

	Direct Material	$ 1,260,000.00
	(900 units x $ 1400)

	Direct Labor	$ 1,890,000.00
	( 900 units x $ 2100)

	VMOH	$ 855,000.00	$ 4,005,000.00
	( 900 units x $ 950)

	Gain/ (Loss) on repairing		$ (135,000.00)

	Since if the company rework the engines and then sales them,
	it'll result in a loss of $ 135,000

	Therefore, the company should sell them for $ 11400 each

ekkarill92 answered 2 years ago

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