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olga nikolaevna [1]
4 years ago
7

Smith Co., maker of high-quality eyewear, incurs fixed costs of $21 and variable costs of $42 in making one unit of its matrix l

ine of sunglasses, based on current demand of 100,000 units per year. Smith Co.'s major supplier has offered to make all 100,000 matrix sunglasses for $50 each. If Smith accepts the offer of the supplier, it will save $4 per unit in fixed costs. Based solely on this information, what is the recommended decision and how much will be saved based on this decision?
Business
1 answer:
egoroff_w [7]4 years ago
8 0

Answer:

It will be better to keep the production, as the unavoidable cost makes the purchase option a financial disadventage of 400,000

Explanation:

\left[\begin{array}{cccc}&$produce&$buy&$Differential\\\\$Purchase&&-5,000,000&-5,000,000\\$Avoidable Cost&-4,600,000&&4,600,000\\$Unavoidable Cost&-1,700,000&-1,700,000&0\\$Total Cost&-6300000&-6,700,000&-400,000\\\end{array}\right]

<u>avoidable cost:</u>

+42 variable cost

<u>+ 4</u> traceable fixed cost

46 cost per unit

46 x 100,000= 4,600,000

<u>unavoidable fixed cost:</u>

total fixed cost - traceable fixed cost = unavoidable fixed cost

21- 4 = 17

17 x 100,000 = 1,700,000

Once we got the numbers, we calcualte the diference for each line and the total financial result

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