X Company is considering buying a part next year that they currently make. This

Question

X Company is considering buying a part next year that they currently make. This year's per-unit production costs for 3,200 units were: Materials $3.50 3.89 3.60 Direct labor jall variable Variable overhead Fixed overhead Total production costs $14.99 A company has offered to supply this part for $13.31 per unit. If X Company buys the part, $6,656 of the fixed overhead can be avoided. Also if X Company buys the part, it can use the freed-up resources to increase production of another product resulting in additional contribution margin of $2,400. Production next year is also expected to be 3,200 units 8 pt2. If X Company buys the part instead of making it, it will save 2 AO S1,632 BO $2,366 CO $3,431 DO $4,975 EO 7,214 FO 810,461 8 pts. At what production level would X Company be indiferent between making and buying the part? 3. AO 2,394 BO 2,705 CO 3,057 DO 3,454 EO 3,003 FO 4,411

Explanation / Answer

2) Relevant cost :

2) So answer is a) $1632

3) Indifferent point :

Manufacturing cost=purchase cost

10.99X+2400+6656 = 13.31X

-2.32X = -9056

X = 3903

so answer is e) 3903

Make Buy Variable manufacturing cost (3.5+3.89+3.60)*3200 35168 Fixed manufacturing cost 6656 Opportunity cost 2400 Purchase cost (13.31*3200) 42592 Total 44224 42592

Related Questions

Navigate

• Browse (All)
• Browse X
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.