x Company currently makes a part and is con Direct materials. $6.70 4.70 5.20 $1

Question

x Company currently makes a part and is con Direct materials. $6.70 4.70 5.20 $16.60 Direct labor Total s222,000 of the total overhead costs were variable; $21,600 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 $80,000, Production next year is expected to increase to 63,550 units. 3. If X Company continues to make the part instead of buying it, it will save Submit Answer Tries 0ys 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? Submit Answer 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 (1061205-1070182) = 8977

4) Indifferrent poing :

Manufacturing cost = Buying cost

15.10X+101600 = 16.84X

15.10X-16.84X   = -101600

-1.74X             = -101600

X(indifferenct point) = 58391 Units

Make Buy direct material 425785 direct labour 298685 variable manufacturing overhead 235135 Fixed manufacturing overhead 21600 Purchase cost 1070182 opportunity cost 80000 Total 1061205 1070182

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