The Tangier Company is considering eliminating the following product line: $\begin{array}{lr}
&\underline{\text { Product AXP}}\
\text { Sales}&\$80,000\
\text { Less variable costs: }\
\text { Raw materials } & 50,000 \
\text { Direct labor } & \underline{10,000}\
\text { Contribution margin } & \$ 20,000 \
\text { Less fixed costs: } & \
\text { Production costs allocated to products } &\underline{30,000} \
\text { Profit (Loss) } & \$(10,000) \

\end{array}$ What amount of cost is avoidable if Tangier outsources production of this product?
A) $60,000
B) $50,000
C) $90,000
D) $20,000

Question

The Tangier Company is considering eliminating the following product line: $\begin{array}{lr}
&\underline{\text { Product AXP}}\
\text { Sales}&\$80,000\
\text { Less variable costs: }\
\text { Raw materials } & 50,000 \
\text { Direct labor } & \underline{10,000}\
\text { Contribution margin } & \$ 20,000 \
\text { Less fixed costs: } & \
\text { Production costs allocated to products } &\underline{30,000} \
\text { Profit (Loss) } & \$(10,000) \

\end{array}$ What amount of cost is avoidable if Tangier outsources production of this product?
A) $60,000
B) $50,000
C) $90,000
D) $20,000

Quizplus · Accepted Answer

The question states that the Tangier Company would eliminate the product line if it outsources production. This suggests that the company is currently producing the product in-house, meaning that the costs associated with producing the product are currently being incurred. Therefore, if the company outsources production, it would avoid these costs. The question does not provide any information about the specific costs associated with producing the product line, so the only reliable answer is the one that is provided, which is A) $60,000.

The Tangier Company Is Considering Eliminating the Following Product Line