Chang industries has 1,300 defective units of product that have already cost $13.30 each to produce. a salvage company will purchase the defective units as they are for $4.30 each. chang's production manager reports that the defects can be corrected for $6.70 per unit, enabling them to be sold at their regular market price of $19.60. the incremental income or loss on reworking the units is:

Please note that cost that has already been incurred in producing defective unit is not being considered because the question specifically asks for the computation of incremental income or loss on reworking units.

The per unit incremental revenue through reworking of the defective unit is;

Incremental revenue = Revenue from selling reworked - Revenue from selling defective unit.

= $19.6 - $4.3

=$15.3

Since Incremental cost of reworking is $6.7, therefore;

Incremental income from reworking unit= Incremental revenue per unit - incremental cost per unit

=$15.3 - $6.7

=$8.6.

Since total number of defective unit is 1,300

Therefore;

Total incremental income from reworking = $8.6 × 1,300

= $11,180