X Company is considering buying a part next year that they currently produce. A
ID: 2463314 • 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 $16.58 per unit. This year's per-unit production costs for 53,000 units were: Materials $5.10 Direct labor [all variable] 5.70 Total overhead 5.10 Of the total overhead costs, $68,900 were fixed, and $52,364 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 $75,000. Production next year is expected to increase to 57,550 units. If X Company continues to make the part instead of buying it, it will save
Explanation / Answer
If X Company continues to make the part instead of buying it , it will save $ 22,413
Workings:
Variable overhead cost per unit = (5.10 x 53,000 - 68,900) / 53,000 = $ 3.80
Total variable cost per unit = $ ( 5.10 + 5.70 + 3.80) = $ 14.60
Make Buy Variable costs of making ( 57,550 x $ 14.60) $ 840,230 Avoidable fixed cost $ 16,536 Purchase cost $ 954,179 Rent revenue $ (75,000) Total cost 856,766 879,179Related Questions
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