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 $17.33 per unit. This year's per-unit production costs for 57,000 units were:

Of the total overhead costs, $102,600 were fixed, and $63,612 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 $70,000. Production next year is expected to increase to 60,550 units. If X Company buys the part instead of making it, it will save:_________?

Explanation / Answer

relevant cost of buy manufacture purchase cost 17.33 0 variable cost 0 15.8 total cost per unit 17.33 15.8 units 60550 60550 total cost 1049332 956690 Less:avoidable fixed cost 63612 Less:rent income 70000 net cost 915719.5 956690 So savings in buy option -40970.5 variable cost = 6.6+5.1+4.1 variable overhead = (5.9*57000-102600)/57000 = 4.1

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