By producing a defective roll in the weaving

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2. By producing a defective roll in the Weaving Department, Wellesley Corporation is worse off by the entire amount of revenue forgone of $1,250 per roll. Note that, since the weaving operation is a constraint, any rolls received by the Printing Department that are defective and disposed of at zero net disposal value result in lost revenue to the firm. An alternative approach to analyzing the problem is to focus on costs of defective units and the benefits of reducing defective units. The relevant costs of defective units in the Printing Department are:
500
650
19-36 3. To determine how much Wellesley Corporation is worse off by producing a defective roll in the Weaving Department, consider the payoff to Wellesley from not having a defective roll produced in the Weaving Department. The good roll produced in the Weaving Department will be sent for further processing in the Printing Department. The relevant costs and benefits of printing and selling this roll follow: Additional direct materials variable costs incurred in the Printing Department $ (100) Expected revenue from selling the finished product, $1,250 × 0.9 (since 10% of the Printing Department output will be defective and will earn zero revenue) 1,125Net expected benefit of producing a good roll in the Weaving Department $1,025By producing a defective roll in the Weaving Department, Wellesley Corporation is worse off by $1,025 per roll. Note that, since the weaving operation is a constraint, any rolls that are defective will result in lost revenue to the firm. An alternative approach to analyzing the problem is to focus on the costs and benefits of reducing defective units. The relevant costs of defective units in the Weaving Department are: a. Direct materials variable costs in the Weaving Department $ b.Expected unit contribution margin forgone from not selling one roll, ($1,250 × 0.9) $500 $100 500 525

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