Questions 2 and 3 refer to the following information: X Company is considering b
ID: 2511981 • Letter: Q
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 3,100 units were: Direct labor [all variable] Variable overhead Fixed overhead Total production costs $3.62 3.16 3.50 5.20 $15.48 A company has offered to supply this part for $12.63 per unit. If X Company buys the part, $8,221 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 $2,000. Production next year is also expected to be 3,100 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 0/3Explanation / Answer
answer:
1
make
Buy
Increase/
decrease
Materials
11222
11222
Direct labor [all variable]
9796
9796
Variable overhead
10850
10850
Fixed overhead
16120
7899
8221
Purchase price
39153
-39153
Total Annual cost
47988
47052
936
Less: opprtunity cost
-2000
2000
Total cost
47988
45052
2936
If X Company buys the part instead of making it, it will save =$2936
______________________________________________
2
Calculation for the X Company be indifferent between making and buying the part
Total cost of making = (3.62+3.16+3.50) xQ + 8221 + 2000
Total cost of buying = $12.63Q
The company will be irrelevant about buying or making the parts when,
Total cost of making = total cost of buying
(3.62+3.16+3.50) xQ + 8221 + 2000= 12.63 Q
11.28 Q+10221 =12.63Q
2.35Q=10221
Q=10221/2.35
Q=4349 units
X Company be indifferent between making and buying the part =4349 units
make
Buy
Increase/
decrease
Materials
11222
11222
Direct labor [all variable]
9796
9796
Variable overhead
10850
10850
Fixed overhead
16120
7899
8221
Purchase price
39153
-39153
Total Annual cost
47988
47052
936
Less: opprtunity cost
-2000
2000
Total cost
47988
45052
2936
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