H.J.Manufacturing produces 10,000 units of a part that is used in their assembly process.The production costs are as follows:
H.J.Manufacturing has the option of purchasing these units from an outside supplier at $10.75 per unit.If the part is outsourced,40% of the fixed costs cannot be immediately converted to other uses.
a.Describe avoidable costs.What amount of the part's production costs is avoidable?
b.Should H.J.outsource the part? Why or why not?
c.What other items should H.J.consider before outsourcing any of the parts it currently manufactures?
Definitions:
Regression
A statistical method used to determine the strength and character of the relationship between one dependent variable and one or more independent variables.
Hawthorne Effect
The phenomenon where subjects alter their behavior simply because they are aware that they are being observed.
Random Errors
Errors in measurement that lead to inconsistent results, often caused by unpredictable and uncontrollable factors.
Randomized Controlled Trials
A study design that randomly assigns participants into an experimental group or a control group to measure the effect of an intervention.
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