The following are the Jensen Corporation's unit costs of making and selling an item at its capacity of 1, 000 units per month: Present sales amount to 700 units per month.Fixed costs, both manufacturing and selling and administrative, are constant within the relevant range between 700 units and 1, 000 units.Direct labor is a variable cost. Assume the company has 50 units left over from last year which have small defects and which will have to be sold at a reduced price.The sale of these defective units will have no effect on the company's other sales.Which of the following costs may be relevant in this decision?
A)variable manufacturing cost
B)unit product cost
C)variable selling and administrative cost
D)full cost

Question

The following are the Jensen Corporation's unit costs of making and selling an item at its capacity of 1, 000 units per month:  Present sales amount to 700 units per month.Fixed costs, both manufacturing and selling and administrative, are constant within the relevant range between 700 units and 1, 000 units.Direct labor is a variable cost. Assume the company has 50 units left over from last year which have small defects and which will have to be sold at a reduced price.The sale of these defective units will have no effect on the company's other sales.Which of the following costs may be relevant in this decision?
A)variable manufacturing cost 
B)unit product cost 
C)variable selling and administrative cost 
D)full cost

Quizplus · Accepted Answer

The manufacturing costs are all sunk costs and are not relevant.The variable selling and administrative costs, or a portion of them, may be relevant.

The Following Are the Jensen Corporation's Unit Costs of Making