What is the avoidable cost per unit

Assignment Help Accounting Basics
Reference no: EM131884250

Question: 1. Solomon Chemical Company makes a variety of cosmetic products, one of which is a skin cream designed to reduce the signs of aging. Solomon produces a relatively small amount (17,000 units) of the cream and is considering the purchase of the product from an outside supplier for $5.60 each. If Solomon purchases from the outside supplier, it would continue to sell and distribute the cream under its own brand name. Solomon's accountant constructed the following profitability analysis:

Revenue (17,000 units × $14.50) $246,500
Unit-level materials costs (17,000 units × $1.60) (27,200)
Unit-level labor costs (17,000 units × $0.80) (13,600)
Unit-level overhead costs (17,000 × $0.20) (3,400)
Unit-level selling expenses (17,000 × $0.30) (5,100)
Contribution margin 197,200
Skin cream production supervisor's salary (59,000)
Allocated portion of facility-level costs (13,400)
Product-level advertising cost (42,000)
Contribution to companywide income $82,800

Required: a. Identify the cost items relevant to the make-or-outsource decision.

b. What is the avoidable cost per unit if the outsourcing decision is taken? Should Solomon continue to make the product or buy it from the supplier?

c. Suppose that Solomon is able to increase sales by 13,000 units (sales will increase to 30,000 units). Calculate the total avoidable costs. At this level of production, should Solomon make or buy the cream?

Reference no: EM131884250

Questions Cloud

Make a bond amortization schedule : Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization. Amortize premium or discount on interest dates.
What is the return for each state of the economy for stock : What is the return for each state of the economy for Stock A? What is the standard deviation of Stock A?
How much money can you borrow at present : How much money can you borrow at present if you repay the lender $850 in 2 years and the interest rate is 6% per year compounded annually?
Couple needs to establish an emergency fund : Calculate the minimum amount this couple needs to establish an emergency fund.
What is the avoidable cost per unit : What is the avoidable cost per unit if the outsourcing decision is taken? Should Solomon continue to make the product or buy it from the supplier?
Research a member of congress that you believe on his : President in Trump has yet to complete his first 100 days in office and yet political pundits have begun speculation of potential challengers.
What is sambas geographic religious cultural origin : What is samba's geographic, religious, cultural origin? Briefly describe the samba styles below using information from the film.
Assuming dividends grow at constant rate : What is the expected return, if a firm has a 45% payout ratio, a return on equity of 10%, and assuming dividends grow at a constant rate?
What is the theoretical fixed manufacturing overhead rate : What is the theoretical fixed manufacturing overhead rate per wrench for the next month?

Reviews

Write a Review

Accounting Basics Questions & Answers

  How much control does fed have over this longer real rate

Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?

  Coures:- fundamental accounting principles

Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.

  Accounting problems

Accounting problems,  Draw a detailed timeline incorporating the dividends, calculate    the exact Payback Period  b)   the discounted Payback Period. the IRR,  the NPV, the Profitability Index.

  Write a report on internal controls

Write a report on Internal Controls

  Prepare the bank reconciliation for company

Prepare the bank reconciliation for company.

  Cost-benefit analysis

Create a cost-benefit analysis to evaluate the project

  Theory of interest

Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR

  Liquidity and profitability

Distinguish between liquidity and profitability.

  What is the expected risk premium on the portfolio

Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.

  Simple interest and compound interest

Simple Interest, Compound interest, discount rate, force of interest, AV, PV

  Capm and venture capital

CAPM and Venture Capital

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd