Question

Kando Company incurs a $12.00 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 $5.00 per unit and sell it for $11.80 per unit. If it does so, unit sales would remain unchanged and $500 of the $12.00 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.) Make Buy 0.00 Selling price per unit Cost per unit to make Cost per unit to buy Cost per unit not eliminated bought Income per unit Company should

Answer 1

The incremental analysis is as follows:

	Make ($)	Buy($)
Selling Price Per Unit (A)	13.50	11.80
Cost Per Unit to Make (I)	12
Cost Per Unit to Buy (II)		5
Cost Per Unit not eliminated if brought (III)		7
		($12 - $5)
Tatal Cost (B) = (I + II + III)	12	12
Income Per Unit (A - B)	$1.50	($0.20)

Company should manufacture a product A because by manufacturing the product A company earns a net income per unit is $1.50 and if the company is decided to buy the product A then the company has to bear the loss of $0.20