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 $18.11 per unit. This year's total production costs for 53,000 units were: Materials Direct labor (all variable Total overhead Total production costs $365,700 302,100 307,400 975,200 Of the total overhead costs, $106,000 were fixed, and $68,900 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 $80,000. Production next year is expected to increase to 57,200 units. If X Company buys the part instead of making it, it will save 4. AO $10,469 B 11,830 CO $13,368 DO $15,105 EO $17,069 O 19,288

Explanation / Answer

Differential analysis :

If X company buys the part instead of making it, it will save $19288

so answer is f) 19,288

Make Buy Direct material 394680 Direct labour 326040 Variable manufacturing overhead 217360 Fixed manufacturing overhead 37100 Opportunity cost 80000 Purchase cost (57200*18.11) 1035892 Total 1055180 1035892

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