GEM Limited has a single product Flicks. The company normally produces and sells 80,000 units of Flicks each year at a price of $240 per unit. The company’s unit costs at this level of activity are as follow:Direct material$57.00Direct labour60.00Variable manufacturing overhead16.80Fixed manufacturing overhead30.00Variable selling and administrative costs10.20Fixed selling and administrative costs27.00Total unit cost$201.00GEM has sufficient capacity to produce 100 000 units of Flicks a year without any increase in fixed manufacturing overhead.Required:(b) The company has 200 units of Flicks on hand that were produced two months ago. Due to blemishes on the units, it will be impossible to sell these units at the normal price. If the company wishes to sell them through regular sales channels, what would be the relevant cost for setting the minimum price? Explain.

Relevant costs are the costs which have not yet incurred. These are incurred when the company takes…

Answered: (b) The company has 200 units of Flicks…

Principles of Accounting Volume 2

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ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter5: Process Costing

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Problem 1PB: The following product costs are available for Stellis Company on the production of erasers: direct...

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GEM Limited has a single product Flicks. The company normally produces and sells 80,000 units of Flicks each year at a price of $240 per unit. The company’s unit costs at this level of activity are as follow:

Direct material	$57.00
Direct labour	60.00
Variable manufacturing overhead	16.80
Fixed manufacturing overhead	30.00
Variable selling and administrative costs	10.20
Fixed selling and administrative costs	27.00
Total unit cost	$201.00

GEM has sufficient capacity to produce 100 000 units of Flicks a year without any increase in fixed manufacturing overhead.

Required:

(b) The company has 200 units of Flicks on hand that were produced two months ago. Due to blemishes on the units, it will be impossible to sell these units at the normal price. If the company wishes to sell them through regular sales channels, what would be the relevant cost for setting the minimum price? Explain.

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