X Company currently buys a part from a supplier for $13.09 per unit but is consi
ID: 2574151 • Letter: X
Question
X Company currently buys a part from a supplier for $13.09 per unit but is considering making the part itself next year. This year, they purchased 3,400 units of this part; next year, they think they will need 3,800 units. Estimated costs to make the part are:
Per-Unit Total
Direct materials $3.69 $12,546
Direct labor 4.32 14,688
Variable overhead 2.70 9,180
Fixed overhead 5.80 19,720
Total $16.51 $56,134
Of the estimated fixed overhead, $8,282 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 $3,000; it will have to use this space to make the part. If X Company continues to buy the part instead of making it, it will save
Explanation / Answer
Total 3400 units Make Buy Direct materials 12546 Direct labor 14688 Variable overhead 9180 Avoidable Fixed overhead 11438 Opportunity cost 3000 Purchase cost 44506 Total costs 50852 44506 If X Company continues to buy the part instead of making it, it will save $6346(50852-44506)
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