Kirkland Company Manufactures a Part for Use in Its Production

question 138

Essay

Kirkland Company manufactures a part for use in its production of hats.When 10 000 items are produced,the costs per unit are:
$$\begin{array} { l r } \text { Direct materials } & \$ 0.60 \\\text { Direct manufacturing labour } & 3.00 \\\text { Variable manufacturing overhead } & 1.20 \\\text { Fixed manufacturing overhead } & \underline { 1.60 } \\\quad \text { Total } & \underline{\$ 6.40} \\\end{array}$$
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 $9000 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:

Self-Enhancement

The motive or tendency to view oneself in a favorable light and to seek positive feedback from others.

Self-Verification

A theory proposing that people seek to confirm their self-concept by preferring feedback and situations that are congruent with their existing beliefs about themselves.

Self-Esteem

An individual's subjective evaluation of their own worthiness and personal value.

Fear of Death

An emotional state characterized by anxiety or dread associated with the awareness of mortality and the inevitable process of dying.