Reference no: EM131826856

Problem - Louder Company manufactures part MNO used in several of its truck models. A total of 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

Louder Company has the option of purchasing part MNO from an outside supplier at $11.20 per unit. If MNO is outsourced, 40% of the fixed costs cannot be immediately converted to other uses.

Question 1: What amount of the MNO production costs is avoidable?

Question 2: Should the company outsource MNO? Why or why not?

Question 3: What other items should the company consider before outsourcing any of the parts it manufactures?