Questions 3 and 4 refer to the following information: X Company currently makes

Question

Questions 3 and 4 refer to the following information: X Company currently makes a part and is considering buying it from a company has offered to supply it for $17.08 per unit. This year, per-unit production costs to produce 60,000 units were: Direct materials Direct labor Overhead Total $6.70 6.00 4.40 $17.10 $156,000 of the total overhead costs were variable; $31,320 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 63,400 units. 3. If X Company continues to make the part instead of buying it, it will save 5748 Submit Answer Incorrect. Tries 3/S Previous Tries 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? Submit Answer Tries o/s

Explanation / Answer

3) Determine make or buy :

If X company continues to make the part instead of buying it, it will save (1082872-1071340) = 11532

4) Indifferrent poing :

Manufacturing cost = Buying cost

15.3X+101320 = 17.08X

15.3X-17.08X   = -101320

-1.78X             = -101320

X(indifferenct point) = 56921 Units

Make Buy direct material 424780 direct labour 380400 variable manufacturing overhead 164840 Fixed manufacturing overhead 31320 Purchase cost 1082872 opportunity cost 70000 Total 1071340 1082872

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