X Company is considering buying a part next year that they currently make. This

Question

X Company is considering buying a part next year that they currently make. This year's per-unit production costs for 3,500 units were:A company has offered to supply this part for dellar14.36 per unit. If X Company buys the part, dellar7,318 of the fixed overhead can be avoided. Also if X Company buys the part, it can use the freed-up resources to increase production of another product, resulting in additional contribution margin of dellar2,400. Production next year is also expected to be 3,500 units. If X Company buys the part instead of making it, it will save 758 Incorrect. Tries 3/3 Previous Tries At what production level would X Company be indifferent between making and buying the part? Submit Ansv/er Tries 0/3

Explanation / Answer

2) Statement showing Benefits Particulars Make Buy Difference Materials Cost = 2.63*3500            9,205.00            9,205.00 Labour Cost = 4.95*3500          17,325.00          17,325.00 Variable Overhead =4.3*3500          15,050.00          15,050.00 Purchase Cost =14.36*3500          50,260.00        (50,260.00) Fixed Overhead            7,318.00            7,318.00 Additional Contribution          (2,400.00)            2,400.00 Total Cost          48,898.00          47,860.00            1,038.00 If X Company buys the part instead of making it, it will save 1038 3) Indifferent Level = Diff in FC/ Diff in VC Indifferent Level = 7318-(-2400)/(14.36- 3.63-4.95-4.3) Indifferent Level = 9718/2.48 Indifferent Level = 3918.55

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