X Company is considering buying a part next year that they currently produce. A

Question

X Company is considering buying a part next year that they currently produce. A company has offered to supply this part for $16.83 per unit. This year's total production costs for 55,000 units were:

Of the total overhead costs, $99,000 were fixed, and $77,220 of these fixed overhead costs are unavoidable. If X Company buys the part, the resources that were used for production can be rented out for $75,000. Production next year is expected to increase to 59,500 units. If X Company buys the part instead of making it, it will save?

Explanation / Answer

Units 59500 Material 313500*59500/55000 339150 Direct Labour 280500*59500/55000 303450 Variable Overheads 346500-99000 247500*59500/55000 267750 Fixed 99000 Total Cost 1009350 If purchased from outside Units 59500 Per unit 16.83 Total 1001385 Add: Fixed Cost 77220 Savings; -75000 Total Cost 1003605 Total savings if purchased fromm outside 5745 1009350-1003605

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