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Question - The following are the Goodman Company's unit costs of making and selling an item at a volume of 20,000 units per month (which represents the company's capacity):
Manufacturing:
Direct materials $2.00
Direct labor 4.00
Variable overhead 1.00
Fixed overhead 1.80
Selling and administrative:
Variable 3.00
Fixed 1.20
Assume the company has 100 units left over from last year which have small defects and which will have to be sold at a reduced price as scrap. 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. What cost is relevant as a guide for setting a minimum price on these defective units?
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