Kirkland Company Manufactures a Part for Use in Its Production

question 33

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:

Social Denominator

A common trait or characteristic that enables individuals within a society to relate to each other.

Stakeholder Power

The capacity of a stakeholder to positively or negatively affect an organization’s operations.

Operations

The day-to-day activities required for the running of a business or an organization, focused on producing goods and providing services efficiently and effectively.

Shareholders' Ability

Refers to the rights and powers of shareholders to influence company decisions and actions through their ownership stake.