Questions 2 and 3 refer to the following information: X Company is considering b

Question

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 3,300 units were: Materials Direct labor [all variable] Variable overhead Fixed overhead Total production costs $2.46 4.01 3.20 $15.27 A company has offered to supply this part for $12.06 per unit. If X Company buys the part, $9,794 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 $2,600. Production next year is also expected to be 3,300 units 2. If X Company buys the part instead of making it, it will 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

Differential analysis :

If X Company buy the part instead of making it, it will save 4507

b) Indifferent point :

Manufacturing cost = Purchase cost

9.67X+12394 = 12.06X

12394 = 2.39X

X(indifferent point) = 5186

Make Buy Direct material 8118 Direct labour 13233 Variable overhead 10560 Fixed overhead 9794 Opportunity cost 2600 Purchase cost 39798 Total 44305 39798

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