Question

Every year Kansas Company manufactures 5,000 units of part 231 for use in its production cycle. The per unit costs of part 231 are as follows:
Direct materials.......... $ 5
Direct labor.............. 12
Variable manufacturing overhead.... 8
Fixed manufacturing overhead...... 10
Total................ $ 35

Verona Company has offered to sell 5,000 units of part 231 to Kansas for $32 per unit. If
Kansas accepts Verona’s offer, its freed-up facilities could be used to earn $10,000 in contribution margin by manufacturing part 240. In addition, Kansas would eliminate 40% of the fixed overhead applied to part 231.

Required
Should Kansas accept Verona’s offer? Why or why not?



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  • CreatedFebruary 21, 2014
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