Katy Co. manufactures a part for use in its production of laptops. When 6,000 items...
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Accounting
Katy Co. manufactures a part for use in its production of laptops. When 6,000 items are produced, the costs per unit are:
Direct materials $54
Direct manufacturing labor 66
Variable manufacturing overhead 55
Fixed manufacturing overhead 45
Total $220
Katy Co. can buy 5,000 units for $180 per unit from Kingwood Co. The plant facilities could be used to manufacture another part at a savings of $150,000 if the firm accepts the offer. In addition, $20 per unit of fixed manufacturing overhead on the original part would be eliminated if the firm does not manufacture the part.
Required:
- Prepare an incremental analysis for the decision to make or buy the parts. (10 pts)
- Which alternative is best for Katy Co.? By how much (10 pts)
- What additional factors should Katy Co. consider in deciding whether or NOT to make or buy the motors? (5 pts)
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