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 $17.30 per unit. This year's per-unit production costs for 55,000 units were:

Of the total overhead costs, $66,000 were fixed, and $45,540 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 59,350 units. If X Company buys the part instead of making it, it will save

Materials $6.90 Direct labor [all variable] 6.00 Total overhead 4.10

Explanation / Answer

if the company buy that part insteed of making it company will save $1,003,730 - $1,002,295 = $1,435

Make Meterials 59,350*$6.90 = $409,515 Direct Labour 59,350*$6.00 = $356,100 Overhead Fixed 66000 Variable ((((55,000*4.10)-66,000)/55,000)*59,350) = $172,115 Total Costs $409,515+$356,100+$66,000+$172,115 = $1,003,730 Buy Purchase price 59,350*$17.30 = $1,026,755 Fixed Cost $45,540 Less: Rent amount Received from another company -$70,000 Total Cost $1,026,755+$45,540-$70,000 = $1,002,295

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