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What amount of the MNO production costs is avoidable

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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 $ 65,000

Direct manufacturing labor 45,000

Variable support costs 55,000

Fixed support costs 60,000

Total costs $225,000

Louder Company has the option of purchasing part MNO from an outside supplier at $19.95 per unit. If MNO is outsourced, 35% of the fixed costs cannot be immediately converted to other uses.

What amount of the MNO production costs is avoidable?

Should the company outsource MNO? Why or why not? For full credit, show all calculations.

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

Reference no: EM131915475

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