(9) In order to evaluate the proposal that BRRR Pty Ltd should outsource the production to Phew Ltd we need to consider which costs are avoidable and which are not. The avoidable costs are those costs that will not be incurred if the decision is made to buy the product rather than manufacture it. The unavoidable costs are those costs that will be incurred whether the product is manufactured or bought from an external firm.
ustomer service cost per unit will be incurred since this is linked with the number of units sold regardless of whether they are purchased or manufactured. The total fixed cost associated with customer service will be incurred. The total fixed cost ...view middle of the document...
X=1403 units. 1403 units is the point of indifference.
(12) The coordinates are:
Option A (0, 445000) (1404, 899357) (3000, 1417000)
Option B (0, 165000) (1404, 899357) (3000, 1736000)
$445000 is the fixed cost of Option A while $165000 is the fixed cost of option B. (1404, 899357) are the coordinates of the point of indifference. This means that when 1404 units are either manufactured or purchased the total cost incurred is the same i.e. $899357. Choosing Option A will result in a total cost of $1417000 if 3000 units are manufactured while choosing Option B will result in a total cost of $1736000 for the same number of units. The difference between the total costs of both the options is represented by the shaded area in the graph which portrays the...