X Company currently makes a part and is considering buying it from a company has

Question

X Company currently makes a part and is considering buying it from a company has offered to supply it for $15.57 per unit. This year, per-unit production costs to produce 53,000 units were:

$169,600 of the total overhead costs were variable; $22,048 of the fixed overhead costs can be avoided if X Company buys the part. In addition, the resources that were used for production can be rented to another company for $75,000. Production next year is expected to increase to 57,650 units.

3. If X Company buys the part instead of making it, it will save

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4. X Company is uncertain about next year's production level. At what production level will the company be indifferent between making and buying the part?

Explanation / Answer

Dear Student Thank you for using Chegg Please find below the answer and please give thumbs up   Statementshowing Computations Paticulars Make Buy Difference Direct Materials = 6.30*57650       363,195.00             363,195.00 Direct Labour = 4.50*57650       259,425.00             259,425.00 Variable overhead = 169600/53000*57650       184,480.00             184,480.00 Fixed overhead0         22,048.00               22,048.00 Purchase cost = 57650*15.57         897,610.50           (897,610.50) Income from renting         (75,000.00)               75,000.00 Total relevant cost       829,148.00         822,610.50                  6,537.50 If X Company buys the part instead of making it, it will save 6,537.50 4) Variable cost = Make 6.30 + 4.50 +169600/53000                 14.00                   15.57 Fixed cost         22,048.00         (75,000.00) Indifference point = 22048-(-75000)/(15.57-14) Indifference point = 61,814 Units

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