8 ptX Company is considering buying a part next year that they currently make. A

Question

8 ptX Company is considering buying a part next year that they currently make. A company has offered to supply this part for $16.64 per unit. This year's total production costs for 59,000 units were: Materials Direct labor (all variable Total overhead Total production costs $395,300 330,400 271,400 $997,100 f the total overhead costs, $106,200 were fixed, and S71,154 of these fixed overhead costs were unavoidable. If X Company uys the part, the resources that were used for production can be rented out for $75,000. Production next year is expected to crease to 63,850 units. If X Company buys the part instead of making it, it will save A? $1,828 BC 82,651 CO 83,843 DO $5,573 EO $8,081 FO $11,717

Explanation / Answer

Answer F. $11,717

Variable overheads = 271,400-106,200 = $165,200

Cost If Make Materials 395,300/59,000X63,850           4,27,795 Direct Labour 330,400/59,000X63,850           3,57,560 Overhead: Variable 165,200/59,000X63,850           1,78,780 Fixed           1,06,200 Total Cost if make        10,70,335 Cost If Buy Purchase from outside market (63,850X16.64)        10,62,464 Unavoidable fixed overheads              71,154 Less: Rentout of resources             -75,000 Total Cost if buy        10,58,618 Savings if buy the part instead of making (1,070,335-1,058,618)              11,717

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