Richter Company has a single product called a Wim. The company normally produces

Question

Richter Company has a single product called a Wim. The company normally produces and sells 60,000 Wims each year at a selling price of $40 per unit. The company’s unit costs at this level of activity are given below:

A number of questions relating to the production and sale of Wims are given below. Each question is
independent.

The company has 500 Wims on hand that were produced last month and have small blemishes. Due to the blemishes, it will be impossible to sell these units at the normal price. If the company wishes to sell them through regular distribution channels, what unit cost figure is relevant for setting a minimum selling price? (Round your answer to 2 decimal places.)

Relevant unit cost______

Richter Company has a single product called a Wim. The company normally produces and sells 60,000 Wims each year at a selling price of $40 per unit. The company’s unit costs at this level of activity are given below:

Explanation / Answer

Relevant unit cost = variable cost / ( units in hands + units produced)

= $1662000 / (500 + 60000) units

= $1662000 / 60500 units

= $27.47 per units

Notes:  For relevant cost , only variable cost are relevant not fixed cost :

   Direct material = $7.70 * 60000 units = $462000

   Direct labour = $13 * 60000 units =$780000

   variable manufacturing overhead = $3.5 * 60000units =$210000

   variable selling expenses = $3.5 * 60000 units = $210000

Total variabel cost = $1662000   

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