Question

Gibson Company makes fine jewelry that it sells to department stores throughout the United States. Gibson 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 $ 45 Cost of labor per unit 33 33 Advertising cost per year 8,100 6,000 Annual depreciation on existing equipment 6,000 5,600 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

Gibson Company

Fixed costs for each product:

Bracelet A Bracelet B

Advertising cost per year 8,100 6,000

Annual depreciation on

existing equipment 6,000 5,600

Total fixed costs $14,100 $11,600

Variable costs:

Bracelet A Bracelet B

Cost of materials per unit $ 29 $ 45

Cost of labor per unit 33 33

Variable cost per unit $ 62 $ 78

Avoidable costs:

Bracelet A Bracelet B

Variable cost per unit $ 62 $ 78

Step-by-step explanation:

a) Data and Calculations:

Bracelet A Bracelet B

Cost of materials per unit $ 29 $ 45

Cost of labor per unit 33 33

Advertising cost per year 8,100 6,000

Annual depreciation on

existing equipment 6,000 5,600

NB:

Advertising cost can be avoided if production did not take place, just as all variable costs can be avoided without production.