CWB Inc. produces stuffed bunnies. The company normally produces and sells 78,000 stuffed bunnies each year at a selling price of $50 per unit. The company's unit costs at this level of activity are given below: Direct materials $9.30 Direct labor 8.00 Variable
CWB Inc. produces stuffed bunnies. The company normally produces and sells 78,000 stuffed
bunnies each year at a selling price of $50 per unit. The company's unit costs at this level of
activity are given below:
Direct materials $9.30
Direct labor 8.00
Variable manufacturing overhead 2.00
Fixed manufacturing overhead 6.00 ($468,000 total)
Variable selling expenses 1.50
Fixed selling expenses 6.00 ($468,000 total)
Total cost per unit $32.80
The company has 500 completed stuffed bunnies on hand that have some
irregularities and are therefore considered to be "seconds." Due to the irregularities, it will be
impossible to sell these units at the normal price through regular distribution channels. What
unit cost figure is relevant for setting a minimum selling price? Briefly explain why.
How to do it and what does unit cost figure mean?
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