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 3,100 units were Materials Direct labor [all variable] Variable overhead Fixed overhead Total production costs $3.23 3.82 2.60 5.60 A company has offered to supply this part for $12.13 per unit. If X Company buys the part, $9,374 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 $2,300. Production next year is also expected to be 3,100 units. unit.itxcompaginadditional contribution marginofS2. 2. If X Company buys the part instead of making it, t wll save Submit Answer Tries 0/3 3. At what production level would X Company be indifferent between making and buying the part? Submit Answer Tries 0/3

Explanation / Answer

2 Make Buy Materials 10013 Direct labor 11842 Variable overhead 8060 Fixed overhead avoidable 9734 Additional contribution margin 2300 Purchase cost 37603 Total 41949 37603 X company will save $4346 3 Indifferent unit level=3100+(4346/(12.13-3.23-3.82-2.6))= 4852

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