# November 2023 Part III ABC company has the opportunity to accept one of two jobs it

Accounting homework problem

 Part III ABC 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 Category Job A Job B Contract price \$ 808,000 \$ 691,000 Unit-level materials 244,800 225,150 Unit-level labor 250,450 306,600 Unit-level overhead 18,100 14,400 Supervisor’s salary 115,670 115,670 Rental equipment costs 25,800 28,400 Depreciation on tools (zero market value) 20,900 20,900 Allocated portion of companywide facility-sustaining costs 11,000 8,900 Insurance cost for job 17,600 17,600

 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 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) \$ 196,000 Unit-level materials costs (14,000 units × \$1.70) (23,800 ) Unit-level labor costs (14,000 units × \$.60) (8,400 ) Unit-level overhead costs (14,000 × \$.40) (5,600 ) Unit-level selling expenses (14,000 × \$.20) (2,800 ) Contribution margin 155,400 Skin cream production supervisor’s salary (57,000 ) Allocated portion of facility-level costs (13,900 ) Product-level advertising cost (46,000 ) Contribution to companywide income \$ 38,500

 Required:

 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 10,000 units (sales will increase to 24,000 units). Calculate the total avoidable costs. c-2. At this level of production, should Seymour make or buy the cream?