The following are Silver Corporation\'s unit costs of making and selling an item
ID: 2534872 • Letter: T
Question
The following are Silver Corporation's unit costs of making and selling an item at a volume of 9,400 units per month (which represents the company's capacity):
Present sales amount to 7,300 units per month. An order has been received from a customer in a foreign market for 2,100 units. The order would not affect regular sales. Total fixed costs, both manufacturing and selling and administrative, would not be affected by this order. The variable selling and administrative costs would have to be incurred for this special order as well as all other sales. Assume that direct labor is a variable cost.
Assume the company has 55 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?
Multiple Choice
$6.80 variable manufacturing cost
$7.20 unit product cost
$3.10 variable selling and administrative cost
$11.10 full cost
Manufacturing: Direct materials $ 2.10 Direct labor $ 3.10 Variable overhead $ 1.60 Fixed overhead $ 0.40 Selling and administrative: Variable $ 3.10 Fixed $ 0.80Explanation / Answer
Silver Corporation's Relevant cost Ans Variable Selling & Administertive Expenses $ 3.10 Total $ 3.10 1) The relevant cost is $3.10 (the variable selling & administerative cost). 2) All other varible cost are sunk,since the units have already been produced. 3) The Fixed cost would not be relevant , since they will not be affected by the sale of left over units.
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