X Company currently makes a part and is considering buying it next year from a c
ID: 2573681 • Letter: X
Question
X Company currently makes a part and is considering buying it next year from a company that has offered to supply it for $16.77 per unit. This year, total costs to produce 50,000 units were: Direct materials Direct labor Overhead $335,000 255,000 230,000 Of the overhead costs, $75,000 were fixed, and $48,000 of these fixed overhead costs are unavoidable even if X Company buys the part. Production next year is not expected to change. If X Company continues to make the part instead of buying it, it will saveExplanation / Answer
Total cost of making the part = 335000 + 255000 + 230000 + 75000 = 895000
Total cost of buying the part + Unavoiadable fixed expense = 50000 * 16.77 + 48000 = 886500
Cost savings of making over buying = 886500 - 895000 = - 8500
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