Exercise 13-13 Outsourcing decision affected by opportunity costs LO 13-3

Freeman Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,100 containers follows.

Unit-level materials	$	5,800
Unit-level labor		6,900
Unit-level overhead		3,900
Product-level costs*		7,500
Allocated facility-level costs		26,700

*One-third of these costs can be avoided by purchasing the containers.

Baxi Container Company has offered to sell comparable containers to Freeman for $2.70 each.

Required

a-1.

Calculate the total relevant cost.

Total relevant cost

a-2.

Should Freeman continue to make the containers?

	Yes
	No

b-1.

Freeman could lease the space it currently uses in the manufacturing process. If leasing would produce $11,200 per month, Calculate the total avoidable costs.

Total avoidable costs

b-2.

Should Freeman continue to make the containers?

	Yes
	No