S pt X Company spent $5,900 on an engineering study that revenled that Product A

Question

S pt X Company spent $5,900 on an engineering study that revenled that Product A could be manufactured more effickently new process would result in variable cost savings of $0.81 per unit and additional fixed costs of $3,710. Current variable costs per unit are 3.31, and current fixed eosts are $10,450. Last year, X Company sold 4.200 units of Product A at a price of $12.96. At what unit sales level would X Company be indifferent between adopting the new process and not adopting it? 1. AO 4,580 BO 5,176 CO 5,849 DO 6609 EO 7,468 FO 8,439 Questions 2 and 3 refer to the following information: X Company is considering buying a part next year that they currently make. This year's per-unit production costs for 3,500 units were: Materials Direct labor (all variable] $2.70 3.54 4.40 Variable overhead Fixed overhead Total production costs $13.94 A company has offered to supply this part for $12.95 per unit. If X Company bays the part, $5,775 of the fixed overbead can resulting in additional contribution margin of $2,300. Production next year is also expected to be 3,500 units be avoided. Also if X Company buys the part, it can use the freed-up resources to increase production of another product 8 pt. If X Company continues to make the part instead of buying it, it will save 8pts. At what production level would X Company be indiferent between mnking and buying the part? 3. AO 1,897 BO 2,144 CO 2,423 DO 2,738 EO 3,004 FO 3,496 8 pt X Company is considering buying a part next year that they currently make. A company has offered to supply this part 8.69 per unit. This year's total production costs for 51,000 units were Materials Direct labor (all variable] Total overhead Total production costs $357,000 270,300 321,300 $948,600 Of the total overhead costs, $96,900 were fixed, and $77,520 of these fixed overhend costs were buys the increase to 54,200 units. If X Company continues to make the part instead of buying it, it will save 4. AO $12,743 BO S18,478 CO 26,793 DO$38,850 EO 56,.332 FO $81,682 unavoidable. If X Co mpany part, the resources that were used for production can be rented out for $70,000. Production next year is expected to

Explanation / Answer

Question - 1 .......... Indifference point = Change in fixed cost / Change in variable cost per unit

= 3710 / 0.81 = 4580 units .............. Option - A

Question - 2 .........Option - A

Total fixed cost = 3500 Units * 3.30 = 11550

If external buying is taken up, this fixed cost shall be 11550 - 5775 - 2300 = 3475

Total cost of buying = 12.95 * 3500 + 3475 = 48800

Total cost of making = 13.94 * 3500 = 48790

So saving in making the product = 48800 - 48790 = 10 ............. Option - A

Question - 3 ................ Option - F

Indifference point = Savings in fixed cost / Increase in variable cost

Savings in fixed cost = 5775 + 2300 = 8075

Increase in variable cost = 12.95 - 10.64 = 2.31

= 8075/2.31 = 3496 ................ Option - F

Question - 4

Cost of making the product = 627300 * 54200 / 51000 + 224400* 54200 / 51000 + 96900

= 666,660 + 238480 + 96900 =  1002040

Cost of buying the product = 54200 * 18.69 + [ 77520 - 70000 ] =  1020518

Saving in making the product = 1020518 - 1002040 = 18478 .......... Option - B

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