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	$	31		$	33
Cost of labor per unit		51			51
Advertising cost per year		9,000			7,200
Annual depreciation on existing equipment		5,000			4,400

Required

1. Identify the fixed costs and determine the amount of fixed cost for each product.
2. Identify the variable costs and determine the amount of variable cost per unit for each product.
3. Identify the avoidable costs and determine the amount of avoidable cost for each product.

Identify the fixed costs and determine the amount of fixed cost for each product.

	Fixed Costs Bracelet A Bracelet B Total fixed costs

Identify the variable costs and determine the amount of variable cost per unit for each product.

	Variable Costs Bracelet A Bracelet B Total variable costs per unit

Identify the avoidable costs and determine the amount of avoidable cost for each product.

	Avoidable Costs Bracelet A Bracelet B

Answer 1

a.	Fixed costs	Bracelet A	Bracelet B
	Advertising Cost per year	$         9,000	$       7,200
Add:	Annual depreciation on existing equipment	$         5,000	$       4,400
	Total Fixed costs	$       14,000	$     11,600
b.	Variable costs	Bracelet A	Bracelet B
	Cost of material per unit	$               31	$             33
Add:	Cost of labor per unit	$               51	$             51
	Total Variable costs	$               82	$             84
c.	Avoidable costs	Bracelet A	Bracelet B
	Cost of material per unit	$               31	$             33
	Advertising Cost per year	$         9,000	$       7,200