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    Decision Making and Relevant Information

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    Louder Company manufactures part MNO 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

    Louder Company has the option of purchasing part MNO from an outside supplier at $11.20 per unit. If MNO is outsourced, 40% of the fixed costs cannot be immediately converted to other uses.

    Question 1: What amount of the MNO production costs is avoidable?

    Question 2: Should the company outsource MNO? Why or why not?

    Question 3: What other items should the company consider before outsourcing any of the parts it currently manufactures?

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    Solution Summary

    The expert discusses decision making and relevant information.