*The problem is solved below, I just want to get clarity on some of the information given. So I don't have a question about solving the prb. I just have a different question about this problem. *A company accepts offer, as a result they gain some avoidable costs. My presumption is A company accepted the offer maybe during the year so this is why they have not only avoidable but unavoidable costs as well. Depreciation is obvious because equipment/facility is already purchased. Also the outside manufacturer took on 75% and 1/3 of Manufacturing overhead and variable selling expenses in this order. This leaves A company with unavoidable expenses of 25% and 2/3 in regards to MOH and variable selling. After looking at this analysis my question is: if A company accepted the offer to be put in affect at the start of the new yr ( using 2020) as example... would the total unavoidable cost for variable selling expenses be 1.20 and 5.00 for MOH? OR would it be 3.75 and .40 every year for A company under the new offer? ...Leading to 20.95 in avoidable costs every year.

Relevant Cost Analysis in a variety of Situations Andretti Company has a single product called a Dak. The company normally produces and sells 60,000 Daks each year at a selling price of $32 per unit. The company's unit costs at this level of activity are given below: Direct materials .... $10.00 Direct labor 4.50 Variable manufacturing overhead 2.30 Fixed manufacturing overhead 5.00 ($300,000 total) Variable selling expenses. 1.20 Fixed selling expenses ....... 3.50 ($210,000 total) Total cost per unit....... $26.50 A number of questions relating to the production and sale of Daks follow. Each question is independent 5. 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? LA Computing the unit cost relevant for comparing to the price quoted by the outside manufacturer $300,000 x 75% Fixed manufacturing overhead cost per unit =- 60,000 units = $3.75 Particulars Amount (in $) Variable manufacturing costs $16.80 Fixed manufacturing overhead cost 3.75 Variable selling expense ($1.20 x 1/3) 0.40 Total costs avoided $20.95 Hence, the outside manufacture's quotation accountable if the unit price is less than $20.95