X Company is considering buying a part next year that they currently produce. A

Question

X Company is considering buying a part next year that they currently produce. A company has offered to supply this part for $14.35 per unit. This year's total production costs for 60,000 units were:

Of the total overhead costs, $72,000 were fixed, and $56,160 of these fixed overhead costs are unavoidable. If X Company buys the part, the resources that were used for production can be rented out for $70,000. Production next year is expected to increase to 64,100 units. If X Company continues to make the part instead of buying it, it will save ____?____

Materials Direct labor [all variable] Total overhead Total production costs $300,000 300,000 222,000 $822,000

Explanation / Answer

it will save $32,745

Produce Buy Buy cost 64,100 @14.35 $919,835 Make @12.5 $801,250 Saving in fixed cost (15,840) Revenue from renting (70,000) cost $801,250 $833,995

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