Question

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 it 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 of Product A would be eliminated. 1. Prepare Incremental cost analysis. Should the company continue to manufacture Product A or purchase it for resale

Answer 1

Since sales will be unaffected profit per unit is more in Sale Purchase, therefore, the company shall purchase and then sell as incremental profit = $7 - $4.50 = $2.50

Step-by-step explanation:

Provided details

In case of manufacturing =

Cost = $9.00

Selling Price = $13.50

Profit per unit = $13.50 - $9 = $4.50

In case of purchase and sale

Cost = $5.00

Selling Price = $12

Profit = $12 - $5 = $7 per unit

Since sales will be unaffected profit per unit is more in Sale Purchase, therefore, the company shall purchase and then sell as incremental profit = $7 - $4.50 = $2.50