Kirkland Company Manufactures a Part for Use in Its Production

Essay

Kirkland Company manufactures a part for use in its production of hats. When 10,000 items are produced, the costs per unit are:


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.
Required:
a. What is the relevant per unit cost for the original part?
b. Which alternative is best for Kirkland Company? By how much?