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22 March, 18:04

Kasten, Inc budgeted 10,000 widgets for production during 2013. Kasten has capacity to produce 12,000 units. Fied factory overhead is allocated to production. The following estimated costs were provided:Direct material ($7.00/unit) $70,000Direct Labor ($15/hr x 2 hrs/unit) 300,000Vairable manufacturing overhead) $4/unit) 40,000Fixed factory overhead costs ($5/unit) 50,000Total $460,000Cost per unit = $461. Kasten received an order for 1,000 units from a new customer in a country in which Kasten has never done business. This customer has offered $43 per widget. Should Kasten accept the order?2. Kasten received an offer from another company to manufature the same quality widgets for $39. Should Kasten let someone else manufacture all 10,000 widgets and focus only on distribution?

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  1. 22 March, 19:53
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    Check the following calculations

    Explanation:

    1. Received an order for 1,000 units

    Cost per unit = $46

    now

    Incremental revenue per widget = $43

    Incremental cost per widget: = (Direct material + Direct Labor + Vairable manufacturing overhead) =

    $7 + ($15 * 2) + $4 = 41

    Incremental profit per unit = 43 - 41 = $2

    Total incremental profit = $2 * 1,000 = $2,000

    Kasten can make an extra $2,000

    2. Cost to buy per widget = $39

    Cost to make per widget: = (Direct material + Direct Labor + Vairable manufacturing overhead) =

    $7 + ($15 * 2) + $4 = 41

    Incremental savings per widget if purchased = 41 - 39 = $2

    Total incremental savings if purchased = $2 * 10,000 = $20,000

    Thus we can say Kasten will save $20,000 if it buys instead of makes
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