Louder Company manufactures part MNO used in several of its truck models. A total of 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.
1: What amount of the MNO production costs is avoidable? (five points)
2: Should the company outsource MNO? Why or why not? (five points)
3: What other items should the company consider before outsourcing any of the parts it manufactures? (five points)