X Company is considering buying a part next year that they currently make. This
ID: 2511628 • Letter: X
Question
X Company is considering buying a part next year that they currently make. This year's per-unit production costs for 3,500 units were:
A company has offered to supply this part for $13.69 per unit. If X Company buys the part, $6,184 of the fixed overhead can be avoided. Also if X Company buys the part, it can use the freed-up resources to increase production of another product, resulting in additional contribution margin of $2,800. Production next year is also expected to be 3,500 units.
2. If X Company buys the part instead of making it, it will save
Explanation / Answer
Per unit 3500 units Make Buy Make Buy Materials 3.81 13335 Direct labor 4.06 14210 Variable overhead 3.4 11900 Fixed overhead 6184 Purchase cost 13.69 47915 Opportunity cost 2800 Total 48429 47915 If X Company buys the part instead of making it, it will save $514(48429-47915)
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