Reference no: EM133081077
Question - Universal Auto Parts manufactures part UAP9 used in several of its truck models. 1,000 units are produced each year with production costs as follows:
Direct materials $80,000
Direct manufacturing labor 50,000
Variable support costs 40,000
Fixed support costs 80,000
Total costs $250,000
The company has the option of purchasing part UAP9 from an outside supplier at $24 per unit. If X12 is outsourced, 20% of the fixed costs cannot be immediately converted to other uses.
Required -
a) Describe avoidable costs. What amount of the UAP9 production costs is avoidable?
b) If the part is outsourced, 20% of the fixed costs cannot be immediately converted to other uses. Should the company outsource UAP9? Why or why not? Show your work.
c) If the part is outsourced, 20% of the fixed costs cannot be immediately converted to other uses, but the unused space can be rented out for $30,000. Should the company outsource UAP9? Why or why not? Show your work.
d) What other items should the company consider before outsourcing any of the parts it currently manufactures?