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

Question

8 pt X Company is considering buying a part next year that they currently make. A company has offered to supply this part or $17.14 per unit. This year's total production costs for 58,000 units were: Materials Direct labor (all variable] Total overhead Total production costs $348,000 336,400 295,800 $980,200 Of the total overhead costs, 881,200 were fixed, and 852,780 of these fixed overhead costs were unavoidable. If X Company uys the part, the resources that were used for production can be rented out for $75,000. Production next year is expected t ncrease to 61,950 units. If X Company buys the part instead of making it, it will save AO $1,370 BO $1,822 CO $2.423 DO $3,223 EO s4287 FOss,701 ,

Explanation / Answer

B $1,822 Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Make Buy Differential Materials = 348000/58000*61950         371,700.00         371,700.00 Direct labour = 336400/58000*61950         359,310.00         359,310.00 Variable overhead = (295800 - 81200)/58000*61950         229,215.00         229,215.00 Fixed Overhead = 81200 - 52780            28,420.00            28,420.00 Purchase cost = 61950*17.14      1,061,823.00 (1,061,823.00) Rental Income         (75,000.00)            75,000.00 Total Relevant costs         988,645.00         986,823.00              1,822.00

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