A company must decide between scrapping defective units at no additional cost or reworking them at a cost of \$5,000. If the reworked units can be sold for \$12,000 and the scrapped units have no salvage value, what is the net sales impact of choosing to rework the units instead of scrapping them?

• A. \$5,000 increase in net sales
• B. \$12,000 increase in net sales
• C. No impact on net sales
• D. \$7,000 increase in net sales

Answer: (B)

Verified step by step guidance

1. Step 1: Identify the two options available to the company: scrapping the defective units at no additional cost or reworking them at a cost of \$5,000.
2. Step 2: Determine the revenue generated from each option. Scrapping the units generates no revenue (salvage value is \$0), while reworking the units allows them to be sold for \$12,000.
3. Step 3: Calculate the net impact of reworking the units by subtracting the rework cost (\$5,000) from the revenue generated (\$12,000). Use the formula: Net Impact = Revenue from Reworked Units - Rework Cost.
4. Step 4: Compare the net impact of reworking the units to the revenue from scrapping the units (which is \$0). This comparison will help determine the increase in net sales.
5. Step 5: Conclude that the net sales impact is the difference between the net impact of reworking the units and the revenue from scrapping the units. This will provide the increase in net sales resulting from choosing to rework the units.