Quiett Truck manufactures the WB23 part used in many truck models. 10,000 units are produced each year and the production costs are as follows:

Direct materials $45,000

Direct manufacturing labor 15,000

Variable support cost 35,000

Fixed support cost 25,000

Total cost $120,000

Quiett Truck has the option to purchase the WB23 part from an external supplier for $11.20 per unit. If WB23 is outsourced, 40% of fixed costs are not immediately convertible to other uses.

 Required

A. Identify avoidable costs. How much of WB23 production costs can be avoided?

B. Should Quiett Truck outsource the WB23? Why or why not?

C. Suppose the space used to manufacture WB23 can be leased for $4,000. Should Quiett Truck outsource the WB23? Why or why not?

D. What other elements should Quiett Truck consider before outsourcing any part it currently manufactures?

Answer rating: 100% (QA)

SOLUTION A Avoidable costs are the costs that can be eliminated if the company decides to outsource ... View the full answer