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 $15.56 per unit. This year, total costs to produce 54,000 units were:

Direct materials $361,800

Direct labor 243,000

Overhead 194,400

Of the overhead costs, $59,400 were fixed, and $38,016 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__________?

Explanation / Answer

Make Buy Direct materials 361800 Direct labor 243000 Overhead: Variable 135000 Avoidable fixed 21384 Purchase cost 840240 Total 761184 840240 If Company continues to make the part instead of buying it, it will save $79056(840240-761184)

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