Andretti Company has a single product called a Dak. The company normally produce

Question

Andretti Company has a single product called a Dak. The company normally produces and sells 82,000 Daks each year at a selling price of $44 per unit. The company’s unit costs at this level of activity are given below:

   

The company has 700 Daks 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? (Round your answer to 2 decimal places.)

relative unit cost per unit:

  Direct materials $ 8.50   Direct labor 9.00   Variable manufacturing overhead 3.70   Fixed manufacturing overhead 5.00 ($410,000 total)   Variable selling expenses 2.70   Fixed selling expenses 5.50 ($451,000 total)   Total cost per unit $ 34.40

Explanation / Answer

The minimum selling price should be set at total variable cost, as fixed costs are not expected to change in the short run.

Therefore, the minimum selling price = Direct materials + Direct labor + Variable manufacturing overhead + Variable selling expenses = $ ( 8.50 + 9.00 + 3.70 + 2.70) = $ 23.90

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