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 $15.68 per unit. This year's per-unit production costs for 55,000 units were: Of the total overhead costs, $93,500 were fixed, and $59,840 of these fixed overhead costs are unavoidable. If X Company buys the part, the resources that were used for production can be rented to another company for $75,000. Production next year is expected to increase to 59,050 units. If X Company buys the part instead of making it, it will save

Explanation / Answer

Co will save $9,456 next year Statement showing computations Particulars Make Buy Difference Direct Material Costs = 59,050 *6.40               377,920.00                           377,920.00 Direct Labour Costs = 59,050 *4.40               259,820.00                           259,820.00 Variable Overhead =59,050*3.20               188,960.00                           188,960.00 Purchase Costs = 59,050*15.68                     925,904.00                         (925,904.00) Fixed Costs = 93,500 - 59,840                  33,660.00                              33,660.00 Oppurtunity Costs = Rent                     (75,000.00)                              75,000.00 Total Costs               860,360.00                     850,904.00                                9,456.00 Variable Overhead pu=( (55,000*4.90)- 93,500)/55000 Variable Overhead pu=(269500- 93,500)/55000 Variable Overhead pu=176,000/55000 Variable Overhead pu= 3.20

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