Question

Sweet Ayla Company currently has the capacity to manufacture 150,000 widgets a year. The widgets normally sell for $23.00 each. Sweet Ayla Company has the following costs related to manufacturing and selling 120,000 widgets: Direct materials $300,000 Direct labor $540,000 Variable manufacturing overhead $180,000 Depreciation on equipment only used for the widgets $40,000 Depreciation on factory $100,000 Salary of widget production manager $70,000 Variable selling costs (commissions) $60,000 Fixed selling costs $80,000 Total $1,370,000 Now assume that at the end of the year. Sweet Ayla Company still has 2,000 units on the shelf. Sweet Ayla Company has redesigned the widget for next year's production, making the old units nearly obsolete. As a result, they are trying to liquidate the old widgets. Normal commissions will be paid. Which costs are relevant in determining the lowest amount that Sweet Ayla Company should accept for these 2,000 units? Choose whether each cost is relevant or not. direct materials and direct labor depreciation on the factory depreciation on the machinery used only on the widgets variable selling costs A. Relevant B. Not relevant

Answer 1

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