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What is the maximum price

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Question - Quality Manufacturing Company manufactures part AG 482 used in several of its hydraulic pump models. Monthly production costs for 10,000 units are as follows:

Direct materials $60,000

Direct labor 35,000

Variable support costs 55,000

Fixed support costs 40,000

Total costs $190,000

It is estimated that 20% of the fixed support costs assigned to part AG 482 will no longer be incurred if the company purchases the part from the outside supplier. Quality Manufacturing Company has the option of purchasing the part from an outside supplier at $16 per unit.

Required -

a. Which of AG 482's production costs are avoidable?

b. What is the dollar value of avoidable costs?

c. What is the maximum price that Quality Manufacturing Company should be willing to pay the outside supplier for each unit of part AG 482?

d. Should Quality Manufacturing Company outsource part AG 482? Why or why not?

e. What else should Quality Manufacturing Company consider before outsourcing any of the parts it currently manufactures?

Reference no: EM132639588

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