1) Kirkland Company manufactures a part for use in its production of hats.When 25,000 items are produced, the costs per unit are: 

 

Direct materials 0.60

Direct manufacturing labor 3.00

Variable manufacturing overhead 1.20

Fixed manufacturing overhead 1.60

Total 6.40

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. (HINT: $.60 will NOT differ between these two alternatives.)

a.What is the relevant per unit cost for the original part?

b. Which alternative is best for Kirkland Company? By how much?

Include qualitative factors in your explanation of your decision-making for this case.

2) Backwoods Incorporated manufactures rustic furniture

The cost accounting system estimates manufacturing costs to be $80 per table, consisting of 70% variable costs and 30% fixed costs.

The company has surplus capacity available. It is Backwoods' policy to add a 50% markup to full costs for only long-term orders. Backwoods Incorporated is invited to bid on an order to supply 100 rustic tables.

a.What is the lowest price Backwoods should bid on this one-time-only (short-term) special order? b.A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Backwoods Incorporated is invited to submit a bid to the hotel chain.

c. What is the lowest price per unit Backwoods should bid on this long-term order? Include qualitative factors in your explanation of your decision-making for this case.

Answer rating: 100% (QA)

1 Kirkland Company a Relevant per unit cost for the original part Relevant per unit cost for the original part includes only the costs that would chan... View the full answer