Question

Kaito Doors Company currently produces the doorknobs for the doors it makes and sells. The monthly cost of producing 5,000 doorknobs is as follows:
Unit-level materials ......... $ 8,000
Unit-level labor ............ 15,000
Unit-level overhead ......... 2,000
Product-level costs* ......... 16,000
Allocated facility-level costs ....... 10,000
*Twenty percent of these costs can be avoided if the doorknobs are purchased.
Braun Company has offered to sell comparable doorknobs to Kaito for $7.60 each.

Required
a. Should Kaito continue to make the doorknobs? Support your answer with appropriate computations.
b. For $12,000 per month, Kaito could lease the manufacturing space to another company. Would this potential cash inflow affect your response to Requirement a? Explain.



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  • CreatedFebruary 07, 2014
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