X Company currently makes a part and is considering buying it next year from a c

Question

X Company currently makes a part and is considering buying it next year from a company that has offered to supply it for $16.27 per unit. This year, total costs to produce 56,000 units were:

Of the overhead costs, $78,400 were fixed, and $47,824 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 save

Direct materials $291,200 Direct labor 336,000 Overhead 274,400

Explanation / Answer

If X Company continues to make the part instead of buying it, it will save USD 57,344

Make Buy 56,000 units Per unit Costs 56,000 units Particulars Amount ($) Amount ($) Net saving Direct Material 291,200 5.20 0 Direct Labour 336,000 6.00 0 Variable Manufacturing overhead (274,400-78,400) 196,000 3.50 0 Fixed manufacturing overhead 78,400 1.40 47,824 Purchase Cost 16.27 911,120 Total 901,600 958,944 57,344

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