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

Question

X Company is considering buying a part next year that they currently make. A company has offered to supply this part for $16.64 per unit. This year's total production costs for 60,000 units were:

Of the total overhead costs, $90,000 were fixed, and $67,500 of these fixed overhead costs were unavoidable. If X Company buys the part, the resources that were used for production can be rented out for $75,000. Production next year is expected to increase to 63,850 units. If X Company continues to make the part instead of buying it, it will save

Explanation / Answer

If X Company continues to make the part instead of buying it, it will save $26,369 Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Make Buy Differential Materials = 360000/60000*63850       383,100.00                  383,100.00 Direct labour = 288000/60000*63850       306,480.00                  306,480.00 Variable overhead = (324000 - 90000)/60000*63850       249,015.00                  249,015.00 Fixed Overhead = 90000 - 67500          22,500.00                    22,500.00 Purchase cost = 63850 * 16.64    1,062,464.00            (1,062,464.00) Rental Income       (75,000.00)                    75,000.00 Total Relevant costs       961,095.00       987,464.00                  (26,369.00)

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