Part IVSeymour 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 (14000 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 (14000 units $14.0)$196000 Unit-level materials costs (14000 units $1.70)
(23800) Unit-level labor costs (14000 units $.60)
(8400) Unit-level overhead costs (14000 $.40)
(5600) Unit-level selling expenses (14000 $.20)
(2800) Contribution margin
155400 Skin cream production supervisor s salary
(57000) Allocated portion of facility-level costs
(13900) Product-level advertising cost
(46000) Contribution to companywide income$38500Required: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 10000 units (sales will increase to 24000 units). Calculate the total avoidable costs.c-2.At this level of production should Seymour make or buy the cream?