Assume the company has 50 units left over from last year which have small defects an which will have to be sold at a reduced price as scrap. This would have no effect on the company's other sales. What cost is relevant as a guide for setting a minimum price on these defective units?

A) $5.00 per unit.
B) $1.50 per unit.
C) $3.50 per unit.
D) $6.50 per unit.

Direct Materials

Materials that become an integral part of a finished product and whose costs can be conveniently traced to it.

Direct Labour

The labor costs directly attributable to the production of goods or services, typically including wages of workers who are physically involved in creation of the product.

Variable Overhead

Expenses that fluctuate with changes in production volume, such as utilities or materials used in the manufacturing process.