(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.
(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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
100%
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 |
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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