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Should tamworth truck outsource yyy

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Reference no: EM13339226

Tamworth Truck manufactures part YYY used in several of its truck models. 10,000 units are produced each year with production costs as follows:

Direct materials

$ 45,000

Direct manufacturing labor

15,000

Variable support costs

35,000

Fixed support costs

25,000

Total costs

$120,000

Tamworth Truck has the option of purchasing part YYY from an outside supplier at $11.20 per unit. If part YYY is outsourced, 40% of the fixed costs cannot be immediately converted to other uses (i.e. cannot be avoided).

a. Describe 'avoidable' costs. What amount of the YYY production costs is avoidable?

b. Should Tamworth Truck outsource YYY? Why or why not?

c. What other items should Tamworth Truck consider before outsourcing any of the parts it currently manufactures?

Reference no: EM13339226

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