Distinction between avoidable costs and cost behavior
Medallion Company makes fine jewelry that it sells to department stores throughout the United States. Medallion is trying to decide which of two bracelets to manufacture. Medallion has a labor contract that prohibits the company from laying off workers freely. Cost data pertaining to the two choices follow.
| Bracelet A | Bracelet B |
Cost of materials per unit | $ 25 | $ 32 |
Cost of labor per unit | 32 | 32 |
Advertising cost per year | 8,000 | 6,000 |
Annual depreciation on existing equip. | 5,000 | 4,000 |
Required
a.Identify the fixed costs and determine the amount of fixed cost for each product.
b. Identify the variable costs and determine the amount of variable cost per unit for each product.
c. Identify the avoidable costs and determine the amount of avoidable cost for each product.
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