Question

A company incurs the following costs to provide each job service for its customers:

Variable labour	$25
Variable vehicle costs	$10
Fixed vehicle costs	$18
Administrative support	$5

A company is considering outsourcing the service and wants to determine the relevant cost of each service, assuming that its variable labour could be made redundant at no cost to the business and vehicles could be sold at statement of financial position values. The unavoidable cost for each service is:

Select one:

a. $35

b. $28

c. $10

d. $5

Answer 1

An unavoidable cost is the cost that is still incurred even if the operations are not performed.

Here the company wants to outsource the services.

So as given, variable labour could be made redundant at no cost to company and hence it can be avoided if outsourced.

Vehicles can be sold at statement of financial position values. So after selling, variable vehicle cost will not be incurred and hence it is avoidable if outsourced. Also if the vehicles are sold , fixed cost related to Vehicles will also be avoided if outsourcing is done.

At last, administrative cost is always incurred whether outsourced or not. So it is an unavoidable cost.

So the answer is option D i.e $5