X Company currently buys a part from a supplier for $12.96 per unit but is consi

Question

X Company currently buys a part from a supplier for $12.96 per unit but is considering making the part itself next year. This year, they purchased 3,300 units of this part; next year, they think they will need 3,800 units. Estimated costs to make the part are:

Of the estimated fixed overhead, $6,669 are common costs that would be allocated to the part; the rest would be additional fixed overhead costs. X Company currently rents unused factory space for $2,800; it will have to use this space to make the part. If X Company continues to buy the part instead of making it, it will save ___________.

Per-Unit Total      Direct materials $3.57    $11,781    Direct labor 3.11    10,263    Variable overhead 3.90    12,870    Fixed overhead 4.70    15,510    Total $15.28    $50,424   

Explanation / Answer

Make Buy Difference Parts Needed in Unit              3,300               3,300 Direct Materials            11,781                 11,781 Direct Labor            10,263                 10,263 Variable Overhead            12,870                 12,870 Fixed Overhead - $15,510 - $6,669              8,841                    8,841 Rent - Unused Factory Space              2,800                    2,800                           -   Purchase Cost - 3,300 Units X $12.96            42,768               (42,768) Total            46,555            42,768                    3,787 If X Company continues to buy the part instead of making it, it will save $3,787.

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