X Company currently makes a part and is considering buying it from a company has
ID: 2574229 • Letter: X
Question
X Company currently makes a part and is considering buying it from a company has offered to supply it for $18.01 per unit. This year, per-unit production costs to produce 51,000 units were:
$204,000 of the total overhead costs were variable; $16,269 of the fixed overhead costs can be avoided if X Company buys the part. In addition, the resources that were used for production can be rented to another company for $80,000. Production next year is expected to increase to 54,700 units.
3. If X Company buys the part instead of making it, it will save ___?
4. X Company is uncertain about next year's production level. At what production level will the company be indifferent between making and buying the part?
Direct materials $6.50 Direct labor 5.90 Overhead 5.10 Total $17.50Explanation / Answer
Direct materials $6.50 Direct labor 5.9 Overhead 5.10 Total $17.50 1 Total Overhead Cost ($5.10*51000 units) 260100 Less: Variable Overhead 204000 FixedCost 56100 Avoidable Fixed Cost 16269 Unavoidable Fixed Cost 39831 Total Cost if company buys the part Cost of the product paid to supplier ($18.01*51000) 918510 Add: Unavoidable Fixed Cost 39831 Less: Income if th eproperty s rented -80000 Total Cost if purchased 878341 Less Total Cost if manufactuerd ($17.50*51000) -892500 Net Savings if purchased 14159 2 Let no of units be X Then, at indifferencepoint 17.50*X = 18.01*X+39831-80000 17.50*X-18.01*X = -40169 X = 40169/0.51 78762.7451 units Direct materials $6.50 Direct labor 5.9 Overhead 5.10 Total $17.50 1 Total Overhead Cost ($5.10*51000 units) 260100 Less: Variable Overhead 204000 FixedCost 56100 Avoidable Fixed Cost 16269 Unavoidable Fixed Cost 39831 Total Cost if company buys the part Cost of the product paid to supplier ($18.01*51000) 918510 Add: Unavoidable Fixed Cost 39831 Less: Income if th eproperty s rented -80000 Total Cost if purchased 878341 Less Total Cost if manufactuerd ($17.50*51000) -892500 Net Savings if purchased 14159 2 Let no of units be X Then, at indifferencepoint 17.50*X = 18.01*X+39831-80000 17.50*X-18.01*X = -40169 X = 40169/0.51 78762.7451 units
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