Freeman Electronics currently produces the shipping containers it uses to delive

Question

Freeman Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 10,000 containers follows. Unit-level materials $ 6,000 Unit-level labor 6,600 Unit-level overhead 4,200 Product-level costs* 10,800 Allocated facility-level costs 26,400 *One-third of these costs can be avoided by purchasing the containers. Baxi Container Company has offered to sell comparable containers to Freeman for $2.50 each. Freeman could lease the space it currently uses in the manufacturing process. If leasing would produce $8,000 per month, Calculate the total avoidable costs.

Explanation / Answer

Solution-

The cost of buying the containers = $25,000 ($2.50*10,000)

So, it better freeman continuing to make the containers.

Avoidable Costs Unit-level materials $6,000 Unit-level labor $6,600 Unit-level overhead costs $4,200 Product-level costs ($10,800/3) $3,600 Total Cost $20,400

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