Grey Goods assembles washing machines at its Cambridge plant. In February 2013, 60 tumbler units that cost $44 each from a new supplier were defective and had to be disposed of at zero disposal price. That new supplier is now bankrupt. Grey Goods was able to rework all 60 washing machines by substituting new tumbler units purchased from one of its existing suppliers. Each replacement tumbler cost $50.
REQUIRED
1. What alternative approaches are there to account for the materials costs of reworked units?
2. Should Grey Goods use the $44 or $50 amount as the costs of materials reworked?
Explain.
3. What other costs might Grey Goods include in its analysis of the total costs of rework due to the tumbler units purchased from the (now) bankrupt supplier?