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 $17.09 per unit. This year's per-unit production costs for 53,000 units were:

Of the total overhead costs, $95,400 were fixed, and $73,458 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 57,300 units. If X Company continues to make the part instead of buying it, it will save how much?

Materials $6.00 Direct labor [all variable] 5.20 Total overhead    5.90

Explanation / Answer

if the company make that part insteed of buying it company will save $982,715 - $972,090 = $10,625

Make Meterials 57,300*$6.00 = $343,800 Direct Labour 57,300*$5.20 = $297,960 Overhead Fixed $95,400 Variable ((((53,000*5.90)-95,400)/53,000)*57,300) = $234,930 Total Costs $343,800+$297,960+$95,400+$234,930 = $972,090 Buy Purchase price 57,300*$17.09 = $979,257 Fixed Cost $73,458 Less: Rent amount Received from another company -$70,000 Total Cost $979,257+$73,458-$70,000 = $982,715

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