Question

An outside manufacturer has offered to produce 60,000 daks and ship them directly to andretti's customers. if andretti company accepts this offer, the facilities that it uses to produce daks would be idle; however, fixed manufacturing overhead costs would be reduced by 75%. because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their present amount. what is andretti's avoidable cost per unit that it should compare to the price quoted by the outside manufacturer?

Answer 1

Answer:

Avoidable Cost per units $20.95

Explanation:

Andretti Company

Variable Manufacturing Cost

(10+4.50+2.30) $16.80

Fixed Manufacturing Overhead $3.75

(300,000/60,000)×75%

(5×0.75)

Variable Selling Expenses $0.40

(1.20/3)

Avoidable Cost per units $20.95