PLEASE I Reaally need to pass the FINAL and I just can\'t get my mind around thi

Question

PLEASE I Reaally need to pass the FINAL and I just can't get my mind around this Question!

The following are the Jensen Corporation's unit costs of making and selling an item at a volume of 1,700 units per month (which represents the company's capacity):

Assume the company has 85 units left over from last year which have small defects and which will have to be sold at a reduced price for scrap. The sale of these defective units will have no effect on the company's other sales. Which of the following costs is relevant in this decision?

$6.35 unit product cost

$5.60 variable manufacturing cost

$2.70 variable selling and administrative cost

$10.20 full cost

PLEASE I Reaally need to pass the FINAL and I just can't get my mind around this Question!

The following are the Jensen Corporation's unit costs of making and selling an item at a volume of 1,700 units per month (which represents the company's capacity):

Explanation / Answer

Relevant cost which have impact on our decision as it is a incremental cost of producing or sell .Fixed manufacturing and selling cost is irrelevant as it will remain constant during the range.

Relevant cost = $ 2.70 variable selling and administrative cost

As all other variable cost is aalready incurred in past and thus irrelevant (sunk cost) .it will have no impact on whether this units are sold as scrap or other.

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