# Accounting homework problem

diaech
 Part IV Seymour Chemical Company makes a variety of cosmetic products, one of which is a skin cream designed to reduce the signs of aging. Seymour produces a relatively small amount (14,000 units) of the cream and is considering the purchase of the product from an outside supplier for \$5.70 each. If Seymour purchases from the outside supplier, it would continue to sell and distribute the cream under its own brand name. Seymour’s accountant constructed the following profitability analysis.

 Revenue (14,000 units × \$14.0) \$ 196,000 Unit-level materials costs (14,000 units × \$1.70) (23,800 ) Unit-level labor costs (14,000 units × \$.60) (8,400 ) Unit-level overhead costs (14,000 × \$.40) (5,600 ) Unit-level selling expenses (14,000 × \$.20) (2,800 ) Contribution margin 155,400 Skin cream production supervisor’s salary (57,000 ) Allocated portion of facility-level costs (13,900 ) Product-level advertising cost (46,000 ) Contribution to companywide income \$ 38,500

 Required:

 a. Calculate the total avoidable costs.

 b-1. Calculate the total avoidable cost per unit.

 b-2. Should Seymour continue to make the product or buy it from the supplier?

 c-1. Suppose that Seymour is able to increase sales by 10,000 units (sales will increase to 24,000 units). Calculate the total avoidable costs. c-2. At this level of production, should Seymour make or buy the cream?
• 8 years ago
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