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Kando Company incurs a $9 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 Product B for $5 per unit and sell it for $12 per unit. If it does so, unit sales would remain unchanged and $5 of the $9 per unit costs assigned to Product A would be eliminated. 1. Prepare Incremental cost analysis. Should the company continue to manufacture Product A or purchase Product B for resale? (Round your answers to 2 decimal places.)

In the format below:

Manufacture A Purchase Product B

sales

costs

aviodable cost

unavoidable costs

cost to purchase

totals costs

sales

The company should...

Respuesta :

Zviko

Answer:

                                      Manufacture  Product A       Purchase Product B

sales                                                0                                            0

costs                                                0                                            0

aviodable cost                                0                                            0

unavoidable costs                       $9.00                                    $4.00

cost to purchase                             0                                         $5.00

totals costs                                  ($9.00)                                  ($9.00)

sales                                             $13.50                                   $12.00

Advantage                                  $4.50                                     $3.00

The company should Manufacture Product A

Explanation:

Calculations based on Incremental Costs Only

                                      Manufacture  Product A       Purchase Product B

sales                                                0                                            0

costs                                                0                                            0

aviodable cost                                0                                            0

unavoidable costs                       $9.00                                    $4.00

cost to purchase                             0                                         $5.00

totals costs                                  ($9.00)                                  ($9.00)

sales                                             $13.50                                   $12.00

Advantage                                  $4.50                                     $3.00

The company should Manufacture Product A

Since Product A results in higher Financial Advantage of $4.50

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