Part IIIABC company has the opportunity to accept one of two jobs; it cannot accept both because they must be performed at the same time and ABC does not have the necessary labor force for both jobs. Indeed it will be necessary to hire a new supervisor if either job is accepted. Furthermore additional insurance will be required if either job is accepted. The revenue and costs associated with each job follow. Cost CategoryJob AJob B Contract price$808000
Supervisor s salary
Rental equipment costs
Depreciation on tools (zero market value)
Allocated portion of companywide facility-sustaining costs
Insurance cost for job
Required:a-1.Calculate the contribution to profit from Job A and Job B.a-2.Assume that ABC has decided to accept one of the two jobs. Recommend which job to accept?b-1.Assume that Job A is no longer available. ABC s choice is to accept or reject Job B alone. Calculate the contribution to profit from Job B.b-2.Based on your answer to requirement b-1 recommend whether to accept or reject Job B.Part IVSeymour Chemical Company makes a variety of cosmetic products one of which is a skin cream designed to reduce the signs of aging. Seymour produces a relatively small amount (14000 units) of the cream and is considering the purchase of the product from an outside supplier for $5.70 each. If Seymour purchases from the outside supplier it would continue to sell and distribute the cream under its own brand name. Seymour s accountant constructed the following profitability analysis.
Revenue (14000 units $14.0)$196000 Unit-level materials costs (14000 units $1.70)
(23800) Unit-level labor costs (14000 units $.60)
(8400) Unit-level overhead costs (14000 $.40)
(5600) Unit-level selling expenses (14000 $.20)
(2800) Contribution margin
155400 Skin cream production supervisor s salary
(57000) Allocated portion of facility-level costs
(13900) Product-level advertising cost
(46000) Contribution to companywide income$38500Required:a.Calculate the total avoidable costs.b-1.Calculate the total avoidable cost per unit.b-2.Should Seymour continue to make the product or buy it from the supplier?c-1.Suppose that Seymour is able to increase sales by 10000 units (sales will increase to 24000 units). Calculate the total avoidable costs.c-2.At this level of production should Seymour make or buy the cream?