Quiett Truck manufactures part WB23 used in several of its truck models. 10,000 units are produced each year with production costs as follows:

Quiett Truck has the option of purchasing part WB23 from an outside supplier at $11.20 per unit. If WB23 is outsourced, 40% of the fixed costs cannot be immediately converted to other uses.
Required:
a. Describe avoidable costs. What amount of the WB23 production costs is avoidable?
b. Should Quiett Truck outsource WB23? Why or why not?
c. What qualitative factors should Quiett Truck consider before outsourcing any of the parts it currently manufactures?

Question

Quiett Truck manufactures part WB23 used in several of its truck models. 10,000 units are produced each year with production costs as follows:

Quiett Truck has the option of purchasing part WB23 from an outside supplier at $11.20 per unit. If WB23 is outsourced, 40% of the fixed costs cannot be immediately converted to other uses.
Required:
a. Describe avoidable costs. What amount of the WB23 production costs is avoidable?
b. Should Quiett Truck outsource WB23? Why or why not?
c. What qualitative factors should Quiett Truck consider before outsourcing any of the parts it currently manufactures?

Quizplus · Accepted Answer

The Answer of Quiett Truck manufactures part WB23 used in several of its truck models. 10,000 units are produced each year with production costs as follows:

Quiett Truck has the option of purchasing part WB23 from an outside supplier at $11.20 per unit. If WB23 is outsourced, 40% of the fixed costs cannot be immediately converted to other uses.
Required:
a. Describe avoidable costs. What amount of the WB23 production costs is avoidable?
b. Should Quiett Truck outsource WB23? Why or why not?
c. What qualitative factors should Quiett Truck consider before outsourcing any of the parts it currently manufactures?

Quiett Truck Manufactures Part WB23 Used in Several of Its