Quiett Truck Manufactures Part WB23 Used in Several of Its

question 48

Essay

Quiett Truck manufactures part WB23 used in several of its truck models.10,000 units are produced each year with production costs as follows:
$\begin{array}{lr}\text { Direct materials } & \$ 45,000 \\\text { Direct manufacturing labor } & 15,000 \\\text { Variable support costs } & 35,000 \\\text { Fixed support costs } & 25,000 \\\text { Total costs }&\$120,000\end{array}$ 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?

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Definitions:

Component Percentages

Express each item on a particular financial statement as a percentage of a single base amount.

Income Statement

A financial statement that shows a company's financial performance, including revenues, expenses, and profits over a specified period.

Comparable Companies

A valuation method that involves comparing a company's financial metrics to those of similar companies in the same industry.

Operating Strategies

Plans and actions implemented by a business to support its operational objectives and to enhance competitive advantage.