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Answer (A) is correct . The original manufacturing cost of $6 per unit is a sunk cost that is not relevant to this decision. The relevant costs are the amounts that must be expended now. Hence, selling the toys for scrap has a $5,950 advantage because rework will produce an additional $7,000 [7,000 × ($3 – $2)], whereas the alternative generates an additional $12,950 (7,000 × $1.85).

Answer (B) is incorrect because The original manufacturing cost of $6 should not be added to the sales price.
Answer (C) is incorrect because The original manufacturing cost of $6 should not be added to the sales price.
Answer (D) is incorrect because The figure of $8,050 (rework) does not include the cost of the rework.