Question
Andretti Company produces and sells a single product called a Dak. The company normally produces and sells 60,000 Daks each year at a selling price
Andretti Company produces and sells a single product called a Dak. The company normally produces and sells 60,000 Daks each year at a selling price of $32 per unit. The companys unit costs at this level of activity are given below:
Direct materials | $10.00 |
|
Direct manufacturing labor | 4.50 |
|
Variable manufacturing overhead | 2.30 |
|
Fixed manufacturing overhead | 5.00 | ($300,000 total) |
Variable selling expenses | 1.20 |
|
Fixed selling expenses | 3.50 | ($210,000 total) |
Total cost per unit | $26.50 |
|
A number of questions related to the production and sale of Daks follow. Each question is independent.
- The company has 1,000 Daks on hand that have irregularities and are therefore considered to be rejects. Thus, it would be impossible to sell these units through normal distribution channels and the only variable selling costs would be $0.50 per Dak for shipping them to a scrap dealer. What is, in theory, the minimum price per unit that Andretti should accept for these Daks? Explain why.
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