Question
Christian Company manufactures and sells one of its products at a price of $120.00 per unit. The costs of manufacturing and marketing the product at
Christian Company manufactures and sells one of its products at a price of $120.00 per unit. The costs of manufacturing and marketing the product at the companys normal volume of 10,000 units per year follow:
Cost per unit
Manufacturing costs:
Direct Materials $32.00
Direct Labor 21.00
Variable overhead 7.50
Fixed manufacturing overhead ($255,000 total) 25.50
Total manufacturing costs per unit $86.00
Nonmanufacturing costs:
Variable marketing, distribution & administrative $15.30
Fixed marketing & administrative ($32,000 total) 3.20
Total nonmanufacturing costs per unit 18.50
Total cost per unit $104.50
Christian Company has 50 units in their inventory that were produced last year and that have small defects. Due to the defects, it will be impossible to sell these units at the normal price. These units must be sold through regular channels (thus incurring the usual variable marketing costs) at reduced prices or the inventory will soon be worthless. What is the minimum acceptable (by Christian) selling price for these units? Explain your answer.
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