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 $15.83 per unit. This year's per-unit production costs for 57,000 units were:

Materials $5.60

Direct labor [all variable] 5.80

Total overhead 4.40

Of the total overhead costs, $96,900 were fixed, and $67,830 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 $80,000. Production next year is expected to increase to 60,950 units. If X Company buys the part instead of making it, it will save

Explanation / Answer

Direct material $ 341,320.00 5.6*60950 Direct labor $ 353,510.00 60950*5.8 Variable overhead $ 164,565.00 (57000*4.4-96900)*60950/57000 Fixed costs (saved) $    29,070.00 96900-67830 Rent from letting $    80,000.00 Total savings $ 968,465.00 Total cost of buying $ 964,838.50 60950*15.83 Profit from buying outside $      3,626.50

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