Jordan Chemical Company makes a variety of cosmetic products, one of which is a skin cream designed to reduce the signs of aging. Jordan produces a relatively small amount (18,000 units) of the cream and is considering the purchase of the product from an outside supplier for $5.30 each. If Jordan purchases from the outside supplier, it would continue to sell and distribute the cream under its own brand name. Jordans accountant constructed the following profitability analysis:

Revenue (18,000 units $13.00)	$	234,000
Unit-level materials costs (18,000 units $1.10)		(19,800	)
Unit-level labor costs (18,000 units $0.80)		(14,400	)
Unit-level overhead costs (18,000 $0.80)		(14,400	)
Unit-level selling expenses (18,000 $0.10)		(1,800	)
Contribution margin		183,600
Skin cream production supervisors salary		(51,000	)
Allocated portion of facility-level costs		(13,100	)
Product-level advertising cost		(40,000	)
Contribution to companywide income	$	79,500

Required

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

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

Suppose that Jordan is able to increase sales by 4,000 units (sales will increase to 22,000 units). Calculate the total avoidable costs. At this level of production, should Jordan 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 =

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 Jordan continue to make the product or buy it from the supplier? (Round your answer to 2 decimal places.)

Total avoidable costs		per unit
Should Jordan continue to make the product or buy it from the supplier?

Complete this question by entering your answers in the tabs below.

Required A

Required B

Required C

Suppose that Jordan is able to increase sales by 10,000 units (sales will increase to 22,000 units). Calculate the total avoidable costs. At this level of production, should Jordan make or buy the cream?

Total avoidable costs
At this level of production, should Jordan make or buy the cream?

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