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?

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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