Acct434 Advanced Cost Management: Week 3 Problem 2 - Louder Company manufactures part MNO

Acct434 Advanced Cost Management
Week 3 Homework

Problem 2:
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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