Problem 13-25 Effects of the level of production on an outsourcing decision LO 13-3 Fanning Chemical Company makes a variety of cosmetic products, one of which is a skin cream designed to reduce the signs of aging. Fanning produces a relatively small amount (17,000 units) of the cream and is considering the purchase of the product from an outside supplier for $4,60 each. If Fanning purchases from the outside supplier, it would continue to sell and distribute the cream under its own brand name Fanning's accountant constructed the following profitability analysis: Revenue (17,000 units $11.00) Unit-level materials costs (17,000 units 51.50) Unit-level labor costs (17,000 units x 50.40) Unit-level overhead costs (17,000 x 50.60) Unit-level selling expenses (17,600 x 50.20) Contribution margin Skin crea production supervisor's salary Allocated portion of facility-level costs Product-level advertising cost Contribution to companywide income $187.00 (25,500) (6,800) (10, 200) 3,400) 141.100 (52,00) (12.100) (37.000) $ 40,000 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 Fanning continue to make the product or buy it from the supplier? c. Suppose that Fanning 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 Fanning make or buy the cream? Complete this question by entering your answers Required A Required B Required c Required A Identify the cost items relevant to Total avoidable costs Required B Problem 13-25 Effects of the level of production on an outsourcing decision LO 13-3 Fanning Chemical Company makes a variety of cosmetic products, one of which is a skin cream designed to reduce the signs of aging. Fanning produces a relatively small amount (17,000 units) of the cream and is considering the purchase of the product from an outside supplier for $4.60 each. If Fanning purchases from the outside supplier, it would continue to sell and distribute the cream under its own brand name. Fanning's accountant constructed the following profitability analysis Revenue (17,eee units x $11.00) Unit-level materials costs (17,000 units x $1.50) Unit-level labor costs (17,000 units x $0.40) Unit-level overhead costs (17,000 x 50.60) Unit-level selling expenses (17,600 x $0.20) Contribution margin Skin cream production supervisor's salary Allocated portion of facility-level costs Product-level advertising cost Contribution to companywide income $187,000 (25,500) (6,880) (10,200) 3,400) 141,100 (52,eee) (12,180) (37.000) $ 40,000 Required a. Identify the cost items relevant to the make-or-outsource decision. b. What is the avoidable cost per unit the outsourcing decision is taken? Should Fanning continue to make the product or buy it from the supplier? c. Suppose that Fanning 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 Fanning make or buy the cream? Complete this question by entering your answers in the tabs below. Required What is the avoidable cost per unit if the outsourcing decision is taken? Should Fanning continue to make the product or buy it from the supplier? (Round your answer to 2 decimal places per unit Total avoidable costs Should Fanning continue to make the product or buy it from the supplier? Problem 13-25 Effects of the level of production on an outsourcing decision LO 13-3 Fanning Chemical Company makes a variety of cosmetic products, one of which is a skin cream designed to reduce the signs of aging, Fanning produces a relatively small amount (17,000 units) of the cream and is considering the purchase of the product from an outside supplier for $460 each. If Fanning purchases from the outside supplier, it would continue to sell and distribute the cream under its own brand name. Fanning's accountant constructed the following profitability analysis $187.be (6,800) (10,200) Revenue (17.000 units x 511.00) Unit-level materials costs (17,000 units 51.50 Unit-level labor costs (17,000 units $0.40) Unit-level overhead costs (17,000 $0.60) Unit-level selling expenses (17.000 50.20) Contribution margin Skin crea production supervisor's salary Allocated portion of facility-level costs Product-level advertising cost Contribution to companywide income 141,100 (52,000) (12.1 ) (37,000) $ 40,000 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 Fanning continue to make the product or buy it from the supplier? c. Suppose that Fanning 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 Fanning make or buy the cream? Complete this question by entering your answers in the tabs below. Required A Required B | Required & Suppose that Fanning is able to increase sales by 10,000 units (sales will increase to 30.000 units). Calculate the total avoidable costs. At this level of production, should Fanning make or buy the cream? Total voldable costs At this level of production should Fanning make or buy the cream?
