Kirkland Company manufactures a part for use in its production of hats. When 10,000 items are...
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Kirkland Company manufactures a part for use in its production of hats. When 10,000 items are produced, the costs per unit are: Direct materi Direct manuf Variable man Fixed manuf Total 0.60 3.00 1.20 1.60 6.40 Mike Company has offered to sell to Kirkland Company 10,000 units of the part for $6.00 per unit. The plant facilities could be used to manufacture another item at a savings of $9,000 if Kirkland accepts the offer. In addition, $1.00 per unit of fixed manufacturing overhead on the original item would be eliminated. a. What is the relevant per unit cost for the original part? (HINT: $.60 will NOT differ between these two alternatives.) b. Which alternative is best for Kirkland Company? By how much? Include qualitative factors in your explanation of your decision-making for this case. Kirkland Company manufactures a part for use in its production of hats. When 10,000 items are produced, the costs per unit are: Direct materi Direct manuf Variable man Fixed manuf Total 0.60 3.00 1.20 1.60 6.40 Mike Company has offered to sell to Kirkland Company 10,000 units of the part for $6.00 per unit. The plant facilities could be used to manufacture another item at a savings of $9,000 if Kirkland accepts the offer. In addition, $1.00 per unit of fixed manufacturing overhead on the original item would be eliminated. a. What is the relevant per unit cost for the original part? (HINT: $.60 will NOT differ between these two alternatives.) b. Which alternative is best for Kirkland Company? By how much? Include qualitative factors in your explanation of your decision-making for this case.
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Answer Solution a Fixed costs are irrelevant costs Thus for the relevant per unit cost for the ... View the full answer
Related Book For
Managerial Accounting
ISBN: 9781260247787
17th Edition
Authors: Ray Garrison, Eric Noreen, Peter Brewer
Posted Date:
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