Solution-Should tamworth truck outsource yyy

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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Should tamworth truck outsource yyy

Reference no: EM13339226

Reference no: EM13339226

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