Kando Company incurs a $10.00 per unit cost for Product A, which it currently ma
ID: 2522226 • Letter: K
Question
Kando Company incurs a $10.00 per unit cost for Product A, which it currently manufactures and sells for $13.50 per unit. Instead of manufacturing and selling this product, the company can purchase it for $6.00 per unit and sell it for $11.10 per unit. If it does so, unit sales would remain unchanged and $6.00 of the $10.00 per unit costs of Product A would be eliminated. 1. Prepare Incremental cost analysis. Should the company continue to manufacture Product A or purchase it for resale? (Round your answers to 2 decimal places.) Manufacture Purchase Product A Sales Costs: Avoidable costs Unavoidable costs Cost to purchase Total costs The company shouldExplanation / Answer
Avoidable cost:- Avoidable cost are the cost which can be eliminated if an alternative option is used
Unavoidable cost= Unavoidable cost are the cost which cannot be eliminated in any case. these are fixed cost of the company or permanent cost.
Manufacture product A
Purchase
Sales
$13.50
$11.10
Costs:
Avoidable cost
$6.00
Unavoidable cost
$4.00
$4.00
Cost to purchase
$6.00
Total cost
$10.00
$10.00
Margin
$3.50
$1.10
The company should
Manufacture the product A
Note:1
As per question, in the manufacturing cost total cost was devided in to 2 parts
(1) Avoidable cost = $6.00
(2) Unavoidable cost = $4.00
Manufacture product A
Purchase
Sales
$13.50
$11.10
Costs:
Avoidable cost
$6.00
Unavoidable cost
$4.00
$4.00
Cost to purchase
$6.00
Total cost
$10.00
$10.00
Margin
$3.50
$1.10
The company should
Manufacture the product A
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