Part IV
Seymour 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 (14,000 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 (14,000 units $14.0)



Unit-level materials costs (14,000 units $1.70)



Unit-level labor costs (14,000 units $.60)



Unit-level overhead costs (14,000 $.40)



Unit-level selling expenses (14,000 $.20)



Contribution margin


Skin cream production supervisor s salary



Allocated portion of facility-level costs



Product-level advertising cost



Contribution to companywide income





Calculate the total avoidable costs.


Calculate the total avoidable cost per unit.


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


Suppose that Seymour is able to increase sales by 10,000 units (sales will increase to 24,000 units). Calculate the total avoidable costs.


At this level of production, should Seymour make or buy the cream?