8 pt X Company is considering buying a part next year that they currently make.

Question

8 pt X Company is considering buying a part next year that they currently make. A company has offered to supply this part for $17.09 per unit. This year's total production costs for 58,000 units were: Materials Direct labor [all variable) Total overhead Total production costs $342,200 284,200 377,000 $1,003,400 Of the total overhead costs, $116,000 were fixed, and $77,720 of these fixed overhead costs were unavoidable. If X Company buys the part, the resources that were used for production can be rented out for $75,000. Production next year is expected to increase to 61,450 units. If X Company buys the part instead of making it, it will save 4. AO $789 BO $1,050 cO $1,396 DO $1,857 EO $2,470 FO $3,284

Explanation / Answer

overhead total overhead 377,000 less :fixed -116000 variable overhead 261,000 increase Make buy (decrease) Materials (342,200/58000)*61450 362555 362555 direct labor (284200/58000)*61450 301105 301105 variable overhead (261000/58000)*61450 276525 276525 fixed overhead 116,000 77,720 38,280 cost of buying (17.09*61450) 1050181 -1050181 Rent -75,000 75,000 total 1056185 1052901 3284.5 option F $3,284 answer

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