Kirkland Company Manufactures a Part for Use in Its Production

question 149

Essay

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

Consumer

An individual who purchases goods or services for personal use, rather than for manufacturing or resale purposes.

Unwise Purchases

Decisions to buy goods or services that reflect poor judgment or impracticality, often leading to regret.

Unfair Trade Practices

Business activities deemed unethical or deceptive, often regulated by laws to protect consumers from fraud and exploitation.

Unsafe Products

Items or products that pose potential risks to consumers' health, safety, or well-being due to their design, manufacture, or lack of adequate warnings.