Ch 13 HW 2 5 points Saved Problem 13-25A (Algo) Effects of the level of production on an outsourcing decision LO 13-3 Perez Chemical Company makes a variety of cosmetic products, one of which is a skin cream designed to reduce the signs of aging. Perez produces a relatively small amount (18,000 units) of the cream and is considering the purchase of the product from an outside supplier for $5.20 each. If Perez purchases from the outside supplier, it would continue to sell and distribute the cream under its own brand name. Perez's accountant constructed the following profitability analysis: eBook Print References Revenue (18,000 units x $13.00) Unit-level materials costs (18,000 units x $1.30) Unit-level labor costs (18,000 units x $0.50) Unit-level overhead costs (18,000 x $0.60) Unit-level selling expenses (18,000 x $0.30) Contribution margin Skin cream production supervisor's salary Allocated portion of facility-level costs Product-level advertising cost Contribution to company-wide income Mc Graw Hill $234,000 (23,400) (9,000) (10,800) (5,400) 185,400 (64,000) (12,800) (45,000) $ 63,600 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 Perez continue to make the product or buy it from the supplier? c. Suppose that Perez is able to increase sales by 8,000 units (sales will increase to 26,000 units). Calculate the total avoidable costs. At this level of production, should Perez 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 < Required A Required B > < Prev 2 of 3 Next > Help Save & Exit Submit Check my work