Question

The following are the unit costs of making and selling an item at a volume of 30,000 units per month, which represents the company's capacity: Manufacturing: Direct materials $ 5.90 Direct labor 11.90 Variable overhead 1.90 Fixed overhead 3.90 Selling and administrative: Variable 7.90 Fixed 9.90 Assume the company has 300 units left over from last year which have small defects and which will have to be sold at a reduced price as scrap. This would have no effect on the company's other sales. The variable selling and administrative costs would have to be incurred to sell the defective units. The cost that is relevant as a guide for setting a minimum price on these defective units is: (Round your answer to two decimal places.) Multiple Choice $35.60 per unit. $7.90 per unit. $17.80 per unit. $31.50 per unit.

Answer 1

$7.90 per unit

Step-by-step explanation:

The computation of the minimum price on these defective units is shown below:

It is equivalent to the selling & admin variable cost per unit i.e. $7.90 per unit

oAs all the other cost would be considered as a sunk cost because the product is already generated and the fixed cost is not considered as it would remain the same whether the production is increase or not

Therefore the second option is correct