Reference no: EM132539069

Question - Kylie Computers is a small local business that provides a wide range of computer hardware and builds custom computer systems for clients using self-developed technology. The company is approached by an outside supplier of graphics cards that offers to sell finished graphics cards to Kylie Computers for $65 per unit. The management team gathers the relevant internal cost data and determines that it can manufacture graphics cards with the following costs:

Direct Materials $40 per unit

Direct Labor $10 per unit

Variable manufacturing overhead $3 per unit

Factory vice president compensation $200,000

Factory property taxes, insurance, etc. $80,000

Salaries for production supervisors (3 x $50,000) $150,000

Salaries for factory maintenance workers (5 x $25,000) $125,000

If Kylie outsources the production of the graphics cards, the company will no longer need two of the three production supervisors and three of the five maintenance workers. These five people will be either fired or reassigned to other tasks within the company.

1. What is total variable cost per unit?

2. What is the total avoidable fixed cost if Kylie decides to outsource production?

3. What is the total cost of buying from the outside supplier if Kylie produces 15,000 units?

4. What is the difference in total cost between outsourcing and manufacturing if Kylie plans to produce 10,000 units?

5. What is the difference in total cost between outsourcing and manufacturing if Kylie plans to produce 20,000 units?