Determine the appropriate action in each of the following managerial decision situations. Transcribed Image Text: Gold Company’s manufacturing process causes a relatively large number of defective parts to be pro-

Determine the appropriate action in each of the following managerial decision situations. Transcribed Image Text: Gold Company’s manufacturing process causes a relatively large number of defective parts to be pro-
duced. The defective parts can be (a) sold for scrap, (b) melted to recover the recycled metal for reuse,
or (c) reworked to be good units. Reworking defective parts reduces the output of other good units
because no excess capacity exists. Each reworked unit means that one new unit cannot be produced.
The following information reflects 500 defective parts currently available. Should the company melt
the parts, sell them as scrap, or rework them?
Proceeds of selling as scrap …
$2,500
Additional cost of melting down defective parts
400
Cost of purchases avoided by using recycled metal from defects. .
4,800
Cost to rework 500 defective parts
Direct materials
Direct labor…
1,500
Incremental overhead
1,750
Cost to produce 500 new parts
Direct materials
6,000
Direct labor…..
5,000
Incremental overhead
3,200
Selling price per good unit
40

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