X Company currently buys a part from a supplier for $14.19 per unit but is consi

Question

X Company currently buys a part from a supplier for $14.19 per unit but is considering making the part itself next year. This year, they purchased 3,000 units of this part; next year, they think they will need 3,500 units. Estimated costs to make the part are: Per-Unit Total Direct materials Direct labor Variable overhead Fixed overhead Total $3.88$11,640 11,400 12,600 16,200 $17.28$51,840 3.80 4.20 5.40 Of the estimated fixed overhead, $7,614 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 $2,100; 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

Explanation / Answer

CALCUALTION OF COST OF MAKING THE PRODUCT INSIDE THE FACTORY Particulars Amount Remarks Direct Materials                        3.88 Variable Cost Direct Labours                        3.80 Variable Cost Vraible Overhead                        4.20 Variable Cost Fixed Overhead as Opportunity Cost                          3.05 Opportunity Cost ($ 10,686 / 3500 Units) Total Cost per unit                      14.93 Per unit Cost Less: Purchasing Price =                      14.19 Per unit Purchase Price Save per unit if they continue to buy                        0.74 Saving Per unit Total Units required for Purchase                3,500.00 units Total Saving =                2,601.00 CALCULATION OF TOTAL RELATED FIXED COST Total Fixed Cost =             16,200.00 Less: Common Cost =                7,614.00 Add: Opportunity Cost =                2,100.00 Total Fixed Cost =             10,686.00 Answer If contiinue to buy the parts instead of making it then they will save = $ 2601

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