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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 ...

Kirkland Company manufactures a part for use in its production of hats. When 10,000 items are produced, the costs per unit are:

   Direct materials   $0.60
   Direct manufacturing labour   3.00
   Variable manufacturing overhead   1.20
   Fixed manufacturing overhead     1.60
      Total    $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.

Required:
a.   What is the relevant per unit cost for the original part?
b.   Which alternative is best for Kirkland Company? By how much?

Textbook

Cost Accounting: A Managerial Emphasis, Canadian Edition

Edition: 7^th

Authors: Horngren, Datar, Rajan, Beaubien

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ruskin Author

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Thanks for your help!!

kriggs62

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Correct

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