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:

John Rawls

A philosopher known for his theory of justice as fairness, which argues for a system of distributing social and economic goods in a manner that benefits the least advantaged members of society.

Moral Equality

The principle that all individuals are equal in moral worth and should be treated as such.

Equality Of Opportunity

The principle that all individuals should have the same chances to pursue their goals without unfair barriers.

Intuitionism

A philosophical doctrine positing that basic moral truths are known instinctively or intuitively, beyond empirical observation or logical deduction.