Assume the company has 500 units of this product left over from last year that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units?

Question

Buckeye

Business

27 December, 05:41

Assume the company has 500 units of this product left over from last year that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units?

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Answers (1)

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Joslyn Ramirez · Answer 1

variable selling and administrative costs

Explanation:

These 500 units are leftovers that the company can decide to either discard directly or try to sell them with a very steep discount. In order to establish a minimum price, you have to consider that any manufacturing costs are sunk costs and that the selling price must at least cover the administrative and selling costs.

The manufacturing costs will be treated as a loss for accounting purposes, so the company must now determine whether they should sell them or directly discard them (or maybe even donate them depending on the type of good).