1. X Company currently buys a part from a supplier for $13.70 per unit but is co
ID: 2574514 • Letter: 1
Question
1. X Company currently buys a part from a supplier for $13.70 per unit but is considering making the part itself next year. This year, they purchased 3,100 units of this part; next year, they think they will need 3,400 units. Estimated costs to make the part are:
Of the estimated fixed overhead, $7,700 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 $2,200; 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 ( )
3 and 4. X Company currently makes a part and is considering buying it from a company has offered to supply it for $16.00 per unit. This year, per-unit production costs to produce 57,000 units were:
$228,000 of the total overhead costs were variable; $33,060 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 $70,000. Production next year is expected to increase to 61,700 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?
Questions 5 and 6 refer to the following information
At the end of the year, a company offered to buy 4,920 units of a product from X Company for a special price of $12.00 each instead of the company's regular price of $19.00 each. The following information relates to the 61,200 units of the product that X Company made and sold to its regular customers during the year:
Fixed cost of goods sold for the year were $113,832, and fixed period costs were $70,380. Variable period costs include selling commissions equal to 2% of revenue.
5. Profit on the special order is
6. Assume the following two changes for the special order: 1) variable cost of goods sold will decrease by $0.80 per unit, and 2) there will be no selling commissions. What will be the effect of these two changes on the special order profit?
Explanation / Answer
1. Cost to manufacture part
Cost to buy parts = 3400 x $13.70 = $46580
If X Company continues to buy the part instead of making it, it will save ($1048)
3. Cost to manufacture parts
Cost to buy parts = 61700 x $16 = $987200
If X Company continues to make the part instead of buying it, it will save $14170.
4. Let the level of production be X.
14.1X + 103060 = 16X
X = 54242
At the level of production of 54242 units, X company will be indifferent between making and buying the part.
5. Relevant Cost to manufacture product
Selling price = $12
Profit on special order = (12-6.76) x 4920 = $25780.80
6.
Relevant Cost to manufacture product
Selling price = $12
Profit on special order = (12-5.72) x 4920 = $30897.60
Direct materials ($2.35 x 3400) $7990 Direct labor ($4.93 x 3400) 16762 Variable overhead ($4.10 x 3400) 13940 Fixed overhead (16740-7700-2200) 6840 Total manufacturing costs $45532Related Questions
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