Rundle Chemical Company makes a variety of cosmetic products, one of which is a skin cream designed to reduce the signs of aging. Rundle produces a relatively small amount $(15,000$ units$)$ of the cream and is considering the purchase of the product from an outside supplier for $$5\mathrm{.}40$ each. If Rundle purchases from the outside supplier, it would continue to sell and distribute the cream under its own brand name. Rundle's accountant constructed the following profitability analysis:

Revenue units $$$$13\mathrm{.}50$

Unit$-$level materials costs units $$$$1\mathrm{.}40$

Unit$-$level labor costs units $$$$0\mathrm{.}80$

Unit$-$level overhead costs $(15,000$$$0\mathrm{.}20)$

Unit$-$level selling expenses $(15,000$$$0\mathrm{.}60)$

contribution margin

Skin cream production supervisor's salary

Allocated portion of facility$-$level costs

Product$-$level advertising cost

contribution to companywide income

$$202,500$

$(21,000)$

$(12,000)$

$(3,000)$

$(9,000)$

$157,500$

$(53,000)$

$(13,400)$

$(48,000)$

$$43,100$

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 Rundle continue to make the product or buy it from the supplier?

c$.$ Suppose that Rundle is able to increase sales by $12,000$ units $($sales will increase to $27,000$ units$).$ Calculate the total avoidable costs. At this level of production, should Rundle make or buy the cream?

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 Rundle continue to make the product or buy it from the supplier?

Note: Round your answer to $2$ decimal places.

Total avoidable costs

per unit

Should Rundle continue to make the product or buy it from the supplier?