X Company currently makes a part and is considering buying it next year from a c

Question

X Company currently makes a part and is considering buying it next year from a company that has offered to supply it for $17.35 per unit. This year, total costs to produce 53,000 units were:

Of the overhead costs, $100,700 were fixed, and $78,546 of these fixed overhead costs are unavoidable even if X Company buys the part. Production next year is not expected to change. If X Company continues to make the part instead of buying it, it will save

Explanation / Answer

Total costs to produce 53000 units can be rearranged as below, distinguishing between variable and fixed costs: Total cost Variable costs: Direct materials $      3,65,700 Direct labor $      3,02,100 Variable overhead $      1,69,600 Total variable cost $      8,37,400 Fixed cost $      1,00,700 Total cost of production $      9,38,100 Total cost if bought: Cost of purchase = 53000*17.35 = $      9,19,550 Unavoidable fixed costs $          78,546 Total costs if purchased $      9,98,096 Costs saved by making the part instead of buying = 998096-938100= $          59,996

Related Questions

Navigate

• Browse (All)
• Browse X
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.