The Tangier Company is considering eliminating the following product line: What amount of cost is avoidable if Tangier outsources production of this product?
$\begin{array}{|l|c|}
\hline &{\text { Product AXP }} \
\hline \text { Sales } & \$ 80,000 \
\hline{\text { Less variable costs: }} \
\hline \text { Raw materials } & 50,000 \
\hline \text { Direct labor } & 10,000 \
\hline \text { Contribution margin } & \$ 20,000 \
\hline{\text { Less fixed costs: }} \
\hline \text { Production costs allocated to products } & 30,000 \
\hline \text { Profit (Loss) } & \$ (10,000) \
\hline
\end{array}$
A)$60,000
B)$50,000
C)$90,000
D)$20,000

Question

The Tangier Company is considering eliminating the following product line: What amount of cost is avoidable if Tangier outsources production of this product?
$\begin{array}{|l|c|}
\hline &{\text { Product AXP }} \
\hline \text { Sales } & \$  80,000 \
\hline{\text { Less variable costs: }} \
\hline \text { Raw materials } &  50,000 \
\hline \text { Direct labor } &  10,000 \
\hline \text { Contribution margin } & \$  20,000 \
\hline{\text { Less fixed costs: }} \
\hline \text { Production costs allocated to products } & 30,000 \
\hline \text { Profit (Loss) } & \$  (10,000) \
\hline
\end{array}$
A)$60,000
B)$50,000
C)$90,000
D)$20,000

Quizplus · Accepted Answer

The avoidable cost is the cost that can be eliminated if the product line is outsourced. In this case, the avoidable cost is the fixed cost of $30,000 that is allocated to the product line.

The Tangier Company Is Considering Eliminating the Following Product Line