Kirsten Corporation makes 100,000 units per year of a part called a B345 gasket
ID: 2388647 • Letter: K
Question
Kirsten Corporation makes 100,000 units per year of a part called a B345 gasket for use in one of its products. Data concerning the unit production costs of the B345 gasket follow:direct materials .... 0.15
direct labor .... 0.10
variable manufacturing overhead ..... 0.13
fixed manufacturing overhead .... 0.24
total manufacturing cost per unit .... 0.62
An outside supplier has offered to sell Kirsten Corporation all of the B345 gaskets it requires. If Kirsten Corporation decided to discontinue making the B345 gaskets, 25% of the above fixed manufacturing overhead costs could be avoided.
Required:
Assume Kirsten Corporation has no alternative use for the facilities presently devoted to production of the B345 gaskets. If the outside supplier offers to sell the gaskets for $0.46 each, should Kirsten Corporation accept the offer? Fully support your answer with appropriate calculations
direct
Explanation / Answer
100,000 units per year of a part called a B345 gasket for use in one of its products. direct materials .... 0.15 direct labor .... 0.10 variable manufacturing overhead ..... 0.13 fixed manufacturing overhead .... 0.24 total manufacturing cost per unit .... 0.62 If Kirsten Corporation decided to discontinue making the B345 gaskets,If Kirsten Corporation decided to discontinue making the B345 gaskets, 25% of the above fixed manufacturing overhead costs could be avoided. 25% of the above fixed manufacturing overhead costs could be avoided=25/100(0.24) so the amt that can be avoided =0.06 *****total manufacturing cost per unit earlier = 0.62 now =0.18+0.13+0.15=$.46 after fixed manufacturing overhead costs could be avoided and also there is direct labor cost . 0.10 so they should accept the offer as it is available at a cheaper price than earlier
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