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Fixed/Variable/Avoidable Costs

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Elegance Company makes fine jewelry that it sells to department stores throughout the United States. Elegance is trying to decide which of two bracelets to manufacture. Elegance 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 30 50
Cost of labor per unit 40 40
Advertising cost per year 8,000 6,000
Annual depreciation on existing equipment 5,000 4,000

A. Identify the fixed costs and determine the amount of fixed costs 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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Solution Summary

The solution explains how to identify fixed, variable and avoidable costs.

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