The following are the Jensen Corporation\'s unit costs of making and selling an

Question

The following are the Jensen Corporation's unit costs of making and selling an item at a volume of 2,500 units per month (which represents the company's capacity): Manufacturing: Direct materials $2.50 Direct labor $3.50 Variable overhead $2.00 Fixed overhead $0.60 Selling and Administrative: Variable $3.50 Fixed $1.00 Present sales amount to 1,450 units per month. An order has been received from a customer in a foreign market for 250 units. The order would not affect current sales. Fixed costs, both manufacturing and selling and administrative, are constant within the relevant range between 1,450 units and 2,500 units. The variable selling and administrative expenses would have to be incurred on this special order as well as for all other sales. Direct labor is a variable cost. Assume the company has 75 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? rev: 11_29_2014_QC_60187 $13.10 full cost $8.60 unit product cost $3.50 variable selling and administrative cost $8.00 variable manufacturing cost

Explanation / Answer

For sale of 75 defective units only variable selling and administrative cost of $3.50 is relevant

Since that will be the only cost incurred

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