X Company currently buys a part from a supplier for $13.01 per unit but is consi

Question

X Company currently buys a part from a supplier for $13.01 per unit but is considering making the part itself next year. This year, they purchased 3,200 units of this part; next year, they think they will need 3,500 units. Estimated costs to make the part are: Per-Unit S3.30 4.08 3.20 3.30 Total Direct materials Direct labor Variable overhead Fixed overhead Total $10,560 13,056 10,240 10,560 $13.88 $44,416 Of the estimated fixed overhead, $5,280 are common costs that would be allocated to the part; the rest would be additional fixed overhead costs. X Company currently rents unused factory space for $2,500; it will have to use this space to make the part. If X Company makes the part instead of buying it, it will save

Explanation / Answer

Determine make or buy :

If company makes the part instead of buying it, it will save (45535-44810) = 725

Make buy direct material 11550 direct labour 14280 Variable overhead 11200 FIxed overhead (10560-5280) 5280 Purchase cost (3500*13.01) 45535 Opportunity cost 2500 Total 44810 45535

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