MC Qu. 37 The Ted Company is considering eliminating the ... The Ted Company is considering eliminating the following product line: Product AXP Sales $42,000 Less variable costs: Raw materials 26,000 Direct labor 5,800 Contribution margin $10,200 Less fixed costs: Production costs allocated to products 15,400 Profit (loss) $ (5,200) What amount of cost is avoidable if Ted outsources production of this product?

The $31,800 is the cost which is avoidable if Ted outsources production of this product.

Explanation:

Since, the Ted company is outsourcing the production of Product AXP, so the variable cost or we can say the raw material, direct labor cost, commissions, etc.

The variable cost is that cost which is change when production level is increased or decreased.

All other cost like fixed cost such as fixed overhead cost, depreciation, etc should be recognized in outsourcing.

In mathematically,

Variable cost = Raw material cost + direct labor cost

= $26,000 + $5,800

= $31,800

Thus, the variable cost is $31,800

Hence, the $31,800 is the cost which is avoidable if Ted outsources production of this product.