Questions 3 and 4 refer to the following information: X Company currently makes

Question

Questions 3 and 4 refer to the following information: X Company currently makes a part and is considering buying it from a company has offered to supply i for $16.21 per unit. This year, per-unit praduction costs to produce 56,000 units were Direct materiels Direct labor Overhcad Total $5.10 6.00 4.90 $16.00 $184,800 of the total avarhead costs were variable; $31,360 of the fixed ovarhead costs can be avoided ir X Company buys the p ncrease to 60,300 units. part. In addition, the res ources that were used for praduction can be rented to another company for $ 75.000. Production next year is expected to 3. IF X Compeny continues to make the part instead of buying it, it wil save .bni1A.SAer Tries 0/5 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? .britanns. Tries 0/5

Explanation / Answer

3) Determine make or buy :

If X company continues to make the part instead of buying it, it will save (974680-977463) = 2783

4) Indifferrent poing :

Manufacturing cost = Buying cost

14.4X+106360 = 16.21X

14.4X-16.21X   = -106360

-1.81X             = -106360

X(indifferenct point) = 58762 Units

Make Buy direct material 307530 direct labour 361800 variable manufacturing overhead 198990 Fixed manufacturing overhead 31360 Purchase cost 977463 opportunity cost 75000 Total 974680 977463

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