Kirkland Company Manufactures a Part for Use in Its Production

question 67

Essay

Kirkland Company manufactures a part for use in its production of hats.When 10,000 items 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 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?

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Definitions:

Role Diffusion

Erikson’s term for lack of clarity in one’s life roles (due to failure to develop ego identity).

Instrumental Competence

The ability of an individual to effectively use tools or methods to achieve desired outcomes or solve problems.

Fetal Stage

The final phase of prenatal development, typically taking place from the ninth week of pregnancy until birth, during which significant growth and maturation of the fetus occur.