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 $14.83 per unit. This year's per-unit production costs for 58,000 units were: Materials $5.10 Direct labor [all variable] 4.00 Total overhead 5.70 Of the total overhead costs, $87,000 were fixed, and $68,730 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 $80,000. Production next year is expected to increase to 62,450 units. If X Company buys the part instead of making it, it will save

Explanation / Answer

Produce Purchase purchase cost 14.83 Units produced 62450 DM 5.1 DL 4 overhead 5.7 total variable 14.8 total variable cost    924,260    926,134 Fixed      68,730 savings    (80,000) total exp    924,260    914,864 savings        9,397

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