X Company is considering buying a part next year that they currently produce. A
ID: 2357164 • Letter: X
Question
X Company is considering buying a part next year that they currently produce. A company has offered to supply this part for $13.64 per unit. This year s production costs for 90,000 units of this part were: Of the total overhead costs, $151,200 were fixed, and of the total fixed overhead costs, $46,872 were directly related to the part and could be avoided if the part was bought instead of made. Production next year is expected to increase to 93,000 units. There is no alternative use for the resources currently involved in the production of the part. If X Company continues to make the part instead of buying it, it will save Incorrect. Tries 2/3 X Company is uncertain about the demand in coming years. At what level of demand will X Company be different between making and buying?Explanation / Answer
SIMILAR PLEASE RATE !!
X Company is considering buying a part next year that they currently make. A company has offered to supply this part for $12.41 per unit. X Company would have to inspect each part at a cost of $0.43 per unit. This year's production costs for 9,200 units of this part were:
Cost Item Total Per-Unit
Materials $28,796 $3.13
Direct labor 27,876 3.03
Variable overhead 39,744 4.32
Fixed overhead 42,780 4.65
Total $139,196 $15.13
If X Company buys the part, $24,812 of the fixed overhead is common and unavoidable; the rest can be avoided. In addition, if X Company buys the part, it can rent out the facilities that it currently uses to make the part and receive $7,000 per year. Estimated production next year is expected to be the same as last year.
1-If X Company buys the part, it will save?
2X Company is concerned that next year's demand may be different than this year's demand. At what level of demand will X Company be indifferent between making and buying?
ANS: ========================
MAKE - 10.48 VC + 42,780 FC = 15.13 each at 9,200
BUY - 12.84 VC + 17,812 (24,812 - 7,000) = 135,940 / 9,200 = 14.78 each at 9,200
1. Saves .35 x 9,200 = 3,220
2.
Let Q = Quantity when indifferent
(10.48 x Q) + 42,780 = (12.84 x Q) + 17,812
42,780 - 17,812 =12.84Q - 10.48Q
24,968 = 2.36Q
Q = 24,968 / 2.36, or 10,580
PROOF:
MAKE 10,580 x 10.48 = 110,878 + 42,780 = 153,658
BUY 10,580 x 12.84 = 135,847 + 17,812 = 153,659
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.