6 Saved 00 Problem 13-25A (Algo) Effects of the level of production on an outsourcing decision LO 13-3 Thornton Chemical Company makes a variety of cosmetic products, one of which is a skin cream designed to reduce the signs of aging. Thornton produces a relatively small amount (16,000 units) of the cream and is considering the purchase of the product from an outside supplier for $5.80 each. If Thornton purchases from the outside supplier, it would continue to sell and distribute the cream under its own brand name. Thornton's accountant constructed the following profitability analysis: Revenue (16,000 units x $14.50) Unit-level materials costs (16,000 units x $1.80) Unit-level labor costs (16,000 units x $0.80) Unit-level overhead costs (16,000 x $0.20) Unit-level selling expenses (16,000 x $0.10) Contribution margin Skin cream production supervisor's salary Allocated portion of facility-level costs Product-level advertising cost Contribution to company-wide income $232,000 (28,800) (12,800) (3,200) (1,600) 185,600 (60,000) (13,200) (41,000) $ 71,400 ances 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 Thornton continue to make the product or buy it from the supplier? c. Suppose that Thornton is able to increase sales by 12,000 units (sales will increase to 28,000 units). Calculate the total avoidable costs. At this level of production, should Thornton make or buy the cream? Complete this question by entering your answers in the tabs below. Required A Required B Required C Identify the cost items relevant to the make-or-outsource decision. wwww Unit-level labor costs (16,000 units x $0.80) Unit-level overhead costs (16,000 x $0.20) Unit-level selling expenses (16,000 x $0.10) Contribution margin Skin cream production supervisor's salary Allocated portion of facility-level costs Product-level advertising cost Contribution to company-wide income (12,800) (3,200) (1,600) 185,600 (60,000) (13,200) (41,000) $ 71,400 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 Thornton continue- from the supplier? c. Suppose that Thornton is able to increase sales by 12,000 units (sales will increase to 28,000 units avoidable costs. At this level of production, should Thornton make or buy the cream? Complete this question by entering your answers in the tabs below. Required A Required B Required C Identify the cost items relevant to the make-or-outsource decision. Total avoidable costs $ 7 17 Unit-level labor costs (16,000 units x $0.80) Unit-level overhead costs (16,000 x $0.20) Unit-level selling expenses (16,000 x $0.10) Contribution margin Skin cream production supervisor's salary Allocated portion of facility-level costs. Product-level advertising cost Contribution to company-wide income (12,800) (3,200) (1,600) 185,600 (60,000) (13,200) (41,000) $ 71,400 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 Thornton continue to make from the supplier? c. Suppose that Thornton is able to increase sales by 12,000 units (sales will increase to 28,000 units). Calcula avoidable costs. At this level of production, should Thornton make or buy the cream? ces Complete this question by entering your answers in the tabs below. Required A Required B Required C What is the avoidable cost per unit if the outsourcing decision is taken? Should Thornton continue to make the product c it from the supplier? (Round your answer to 2 decimal places.) Total avoidable costs Should Thornton continue to make the product or buy it from the supplier? Unit-level labor costs (16,000 units x $0.80) Unit-level overhead costs (16,000 x $0.20) Unit-level selling expenses (16,000 x $0.10) Contribution margin Skin cream production supervisor's salary Allocated portion of facility-level costs Product-level advertising cost Contribution to company-wide income (12,800) (3,200) (1,600) 185,600 (60,000) (13,200) (41,000) $ 71,400 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 Thornton continue to make the from the supplier? c. Suppose that Thornton is able to increase sales by 12,000 units (sales will increase to 28,000 units). Calculate avoidable costs. At this level of production, should Thornton make or buy the cream? Complete this question by entering your answers in the tabs below. Required A Required B Required C Suppose that Thornton is able to increase sales by 12,000 units (sales will increase to 28,000 units). Calculate the total avoidable costs. At this level of production, should Thornton make or buy the cream? Total avoidable costs At this level of production, should Thornton make or buy the cream?