A company must decide between scrapping or reworking units that do not pass inspection. The company has 16,000 defective units that have already cost $132,000 to manufacture. The units can be sold as scrap for $54,400 or reworked for $76,800 and then sold for $140,800.

(a) Prepare a scrap or rework analysis of income effects.
(b) Should the company sell the units as scrap or rework them?