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 $14.64 per unit. This year, total costs to produce 56,000 units were: Direct materials Direct labor Overhead $291,200 268,800 229,600 Of the overhead costs, $78,400 were fixed, and $52,528 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

If X Company continues to make the part, total cost = $291,200 + $268,800 + $229,600 = $789,600

If X Company decides to buy the part, total cost = $14.64 * 56,000 + $52,528 = $872,368

So, the company will save = $872,368 - $789,600 = $82,768

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