Question

Adams Company makes fine jewelry that it sells to department stores throughout the United States. Adams is trying to decide which of the two bracelets to manufacture. Cost data pertaining to the two choices follow. Bracelet A Bracelet B Cost of materials per unit $ 29 $ 41 Cost of labor per unit 36 36 Advertising cost per year 8,800 6,900 Annual depreciation on existing equipment 6,200 5,500 Required Identify the fixed costs and determine the amount of fixed cost for each product. Identify the variable costs and determine the amount of variable cost per unit for each product. Identify the avoidable costs and determine the amount of avoidable cost for each product.

Answer 1

Answer:

                                      Bracelet A,                 Bracelet B

Total fixed cost =             $15,000                    $12,400

Total variable cost =        $65                           $77

Total Avoidable cost =    $8,829                      $6,941

Explanation:

According to the scenario, the given data are as follows:

For Bracelet A

Cost of material = $29

Cost of labor = 36

Advertising cost = 8,800

Annual depreciation = 6,200

For Bracelet B

Cost of material = $41

Cost of labor = 36

Advertising cost = 6,900

Annual depreciation = 5,500

So, Fixed cost for each products = Advertising cost + Annual depreciation

For Bracelet A,

Fixed Cost = 8,800 + 6,200 = 15,000

For bracelet B,

Fixed cost = 6,900 + 5,500 = 12,400

Now, Variable cost = Cost of material + Cost of labor

For Bracelet A

Variable cost = 29 + 36 =  65

For Bracelet B

Variable cost = 41 + 36 = 77

And Avoidable cost = Cost of material  + Advertising cost

For Bracelet A,

Avoidable cost = 29 + 8,800 = 8,829

For Bracelet B

Avoidable cost = 41 + 6,900 = 6,941