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 $3.18 3.65 2.50 4.50 $13.83 A company has offered to supply this part for $11.65 per unit. If X Company buys the part, $7,870 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 $2,900. 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

2) Differential analysis :

If company buy the part instead of making it, it will save 3114

3) Indifferent point

Manufacturing cost = Purchase cost

9.33X+10770 = 11.65X

X(indifferent point) = 4642 units

Make Buy Direct material 10494 Direct labour 12045 Variable manufacturing overhead 8250 Fixed manufacturing overhead 7870 Opportunity cost 2900 Purchase cost 38445 Total 41559 38445

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