X Company is considering buying a part next year that they currently produce. A
ID: 2463049 • Letter: X
Question
X Company is considering buying a part next year that they currently produce. A company has offered to supply this part for $16.62 per unit. This year's per-unit production costs for 54,000 units were: Materials $6.40 Direct labor [all variable] 4.80 Total overhead 5.10 Of the total overhead costs, $81,000 were fixed, and $60,750 of these fixed overhead costs are unavoidable. If X Company buys the part, the resources that were used for production can be rented to another company for $70,000. Production next year is expected to increase to 57,250 units. If X Company continues to make the part instead of buying it, it will save LAST ATTEMPT. NEED ANSWER AND PLEASE SHOW ALL WORK!
Explanation / Answer
Variable overhead per unit =Total overhead cost -(Fixed overhead /number of units)
= 5.10 - (81000/54000)
= 5.10 - 1.5
= $ 3.6 per unit
Fixed overhead incremental = 81000 -60750 = 20250
If company makes product it will save = 951495 -867550 = $ 83945
Incremental saving if product Incremental cost Purchase cost 16.62 * 57250 = 951495 Material cost 6.40 * 57250 = 366400 Labor cost 4.8*57250 = 274800 Variable overhead 3.6 *57250 = 206100 Fixed cost 20250 Total 951495 867550Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.