Answer: Should Hodge Inc. decide to rework and sell the material, it faces a financial disadvantage of $4,500.
Let's examine the reasoning:
1) Selling the material at its scrap value leads to a cost of $74,600 while receiving $57,400 from the sale, resulting in
57400 - 74600 = (-17200). Thus, a loss of $17,200 is incurred.
2) Reworking the material incurs an initial cost of $74,600, an additional reworking expense of $1,500, and a sale income of $54,400 =
54400 - (74600 + 1500) = (-21700). There is a resultant loss of $21,700.
Comparing the two outcomes =
(-21700) - (-17200) = -4500. Thus, Hodge Inc. would experience a financial detriment of $4,500 if opting to rework the material rather than selling it as scrap.
