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.
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 other items should Quiett Truck consider before outsourcing any of the parts it currently manufactures?
Definitions:
Wedge Brakes
A type of brake mechanism where a wedge is used to press brake linings against a drum or rotor to slow or stop motion, often found in heavy vehicles.
Primary Circuit
The main electrical circuit in a system, responsible for providing power to the essential components or functions.
Tandem Drive Axle
One of a pair of drive axles used in tandem drive highway trucks.
Air Brake Equipped Tractor
A tractor fitted with a pneumatic brake system, utilizing compressed air to create braking force for the vehicle.
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