Kirsten Corporation Makes 100,000 Units Per Year of a Part

question 18

Essay

Kirsten Corporation makes 100,000 units per year of a part called a B345 gasket for use in one of its products.Data concerning the unit production costs of the B345 gasket follow: An outside supplier has offered to sell Kirsten Corporation all of the B345 gaskets it requires.If Kirsten Corporation decided to discontinue making the B345 gaskets, 25% of the above fixed manufacturing overhead costs could be avoided.Assume that direct labor is a variable cost.

Required:
a.Assume Kirsten Corporation has no alternative use for the facilities presently devoted to production of the B345 gaskets.If the outside supplier offers to sell the gaskets for $0.46 each, should Kirsten Corporation accept the offer? Fully support your answer with appropriate calculations.
b.Assume that Kirsten Corporation could use the facilities presently devoted to production of the B345 gaskets to expand production of another product that would yield an additional contribution margin of $10,000 annually.What is the maximum price Kirsten Corporation should be willing to pay the outside supplier for B345 gaskets?

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Definitions:

Class Inclusion

Class inclusion is a cognitive ability to understand that a specific item can belong to a broader category as well as to a more specific subcategory at the same time, a concept extensively studied by Jean Piaget.

Decentration

The ability to consider multiple aspects of a situation simultaneously, characteristic of cognitive development in children.

Stimulant

A substance that increases physiological or nervous activity in the body, enhancing alertness, attention, and energy.

Attention-Deficit/Hyperactivity Disorder

Attention-Deficit/Hyperactivity Disorder, or ADHD, is a neurodevelopmental disorder characterized by patterns of hyperactivity, impulsivity, and/or inattention that are more frequent and severe than typically observed in individuals at a comparable level of development.