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 $16.85 per unit. This year's per-unit production costs for 52,000 units were: Materials $6.90 Direct labor [all variable] 5.60 Total overhead 3.90 Of the total overhead costs, $72,800 were fixed, and $56,056 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 55,650 units. If X Company continues to make the part instead of buying it, it will save

Explanation / Answer

if the company make that part insteed of buying it company will save $923,758.50 - $907,550 = $16,208.50

Make Meterials 55,650*$6.90 = $383,985 Direct Labour 55,650*$5.60 = $311,640 Overhead Fixed $72,800 Variable ((((52,000*3.90)-72,800)/52,000)*55,650) = $139,125 Total Costs $383,985+$311,640+$72,800+$139,125 = $907,550 Buy Purchase price 55,650*$16.85 = $937,702.50 Fixed Cost $56,056 Less: Rent amount Received from another company -$70,000 Total Cost $937,702.50+$56,056-$70,000 = $923,758.50

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