Question - Arker Company has a single product called a Zet. The company normally produces and sells 80,000 Zets each year at a selling price of $40 per unit. The company's unit costs at this level of activity are given below:
Direct Materials $9.50
Direct Labor $10.00
Variable Manufacturing Overhead $2.80
Fixed Manufacturing Overhead $5.00 ($400,000 Total)
Variable Selling Expenses $1.70
Fixed Selling Expenses $4.50 ($360,000 Total)
Total Cost Per Unit $33.50
The company has 500 Zets on hand that were produced last month and have small blemishes. Due to the blemishes, it will be impossible to sell these units at the normal price. If the company wishes to sell them through regular distribution channels, what unit cost figure is relevant for setting a minimum selling price? Explain.