X Company currently buys a part from a supplier for $13.86 per unit but is consi
ID: 2574952 • Letter: X
Question
X Company currently buys a part from a supplier for $13.86 per unit but is considering making the part itself next year. This year, they purchased 3,400 units of this part; next year, they think they will need 3,800 units. Estimated costs to make the part are:
Of the estimated fixed overhead, $6,038 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 $2,100; it will have to use this space to make the part. If X Company makes the part instead of buying it, it will save?
(The answer is not 6672)
Per-Unit Total Direct materials $3.37 $11,458 Direct labor 4.58 15,572 Variable overhead 3.60 12,240 Fixed overhead 3.70 12,580 Total $15.25 $51,850Explanation / Answer
Answer:
If X Company makes the part instead of buying it, it will save $640
Working notes for the above answer is as under
Per-Unit
Total
Direct materials (3.37*3800)
3.37
12806
Direct labor (4.58*3800)
4.58
17404
Variable overhead (3.60*3800)
3.6
13680
Fixed overhead
6038
Rent Income Forgotten
2100
Total
52028
Less: Purchase price (3800*13.86)
52668
Saving in making
640
Per-Unit
Total
Direct materials (3.37*3800)
3.37
12806
Direct labor (4.58*3800)
4.58
17404
Variable overhead (3.60*3800)
3.6
13680
Fixed overhead
6038
Rent Income Forgotten
2100
Total
52028
Less: Purchase price (3800*13.86)
52668
Saving in making
640
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