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 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...

Answer 1

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

Step-by-step 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