Assume the company has 300 units left over from last year which have small defects. These units will have to be sold at a reduced price as scrap or thrown away. 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. Identify whether the following costs are relevant or irrelevant then determine the minimum selling price for selling the defective units.
Assume the company has 300 units left over from last year which have small defects. These units will have to be sold at a reduced price as scrap or thrown away. 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. Identify whether the following costs are relevant or irrelevant then determine the minimum selling price for selling the defective units.
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter6: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 2CMA
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Assume the company has 300 units left over from last year which have small defects. These units will have to be sold at a reduced price as scrap or thrown away. 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. Identify whether the following costs are relevant or irrelevant then determine the minimum selling price for selling the defective units.
Transcribed Image Text: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
$6.00
12.00
Direct labor
Variable overhead
2.00
Fixed overhead
4.00
Selling and administrative:
Variable
8.00
Fixed
10.00
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