Question: Kaito Doors Company currently produces the doorknobs for the doors

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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