Kirkland Company manufactures a part for use in its production.When 10,000 units are produced,the costs per unit are:
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 support on the original item would be eliminated.
Required:
a.What is the relevant cost per unit for the original part?
b.Which alternative is best for Kirkland Company? By how much?
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