The Following Are Silver Corporation's Unit Costs of Making and Selling

question 137

Multiple Choice

The following are Silver Corporation's unit costs of making and selling an item at a volume of 8,000 units per month (which represents the company's capacity) : Present sales amount to 7,000 units per month. An order has been received from a customer in a foreign market for 1,000 units. The order would not affect regular sales. Total fixed costs, both manufacturing and selling and administrative, would not be affected by this order. The variable selling and administrative costs would have to be incurred for this special order as well as all other sales. Assume that direct labor is a variable cost.
Assume the company has 50 units left over from last year which have small defects and which will have to be sold at a reduced price for scrap. The sale of these defective units will have no effect on the company's other sales. Which of the following costs is relevant in this decision?

• A) $11 variable manufacturing cost
• B) $19 unit product cost
• C) $1 variable selling and administrative cost
• D) $26 full cost

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Definitions:

Functional Fixedness

A cognitive bias that limits a person to using an object only in the way it is traditionally used, hindering creativity.

Mental Set

A tendency to approach situations in a certain way because that method has worked in the past, potentially hindering the ability to see alternative solutions.

Squeaky Stair

A common household issue where one or more steps produce a squeaking noise when pressure is applied, typically due to loose components or friction.

Law of Small Numbers

A cognitive bias leading to the erroneous belief that small samples accurately represent an entire population.