X Company currently makes a part and is considering buying it from a company has

Question

X Company currently makes a part and is considering buying it from a company has offered to supply it for $17.00 per unit. This year, per-unit production costs to produce 57,000 units were:

Direct materials $5.30

Direct labor 5.30

Overhead 6.40

Total $17.00

$256,500 of the total overhead costs were variable; $29,241 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 $75,000. Production next year is expected to increase to 61,000 units.

3. If X Company continues to make the part instead of buying 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?

Explanation / Answer

Answer:-

3) If x company continues to make the part instead of buying it, it will save $ 4059.

4)-

Statement of comprative cost Manufaturing Amount Purchase from outside Amount Per unit $ Per unit $ Direct Material          5.30 Purchase Cost        17.00 Direct Labor          5.30 Overhead          4.50 $256500/57000 units (Only variable part) Fixed overhead 0.513 Only Avoidable cost $29241/57000 units Total Manufaturing cost      15.613 Total Purchase cost        17.00

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