X Company currently buys a part from a supplier for $13.18 per unit but is consi

Question

X Company currently buys a part from a supplier for $13.18 per unit but is considering making the part itself next year. This year, they purchased 3,200 units of this part; next year, they think they will need 3,600 units. Estimated costs to make the part are:

Of the estimated fixed overhead, $6,771 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 $2,900; 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 ___________

Per-Unit Total      Direct materials $2.71    $8,672    Direct labor 4.17    13,344    Variable overhead 4.00    12,800    Fixed overhead 4.60    14,720    Total $15.48    $49,536   

Explanation / Answer

Per unit Total 3600 units Make Buy Make Buy Direct materials 2.71 9756 Direct labor 4.17 15012 Variable overhead 4 14400 Fixed overhead 7949 Opportunity cost 2900 Purchase cost 13.18 47448 Total cost 50017 47448 If X Company continues to buy the part instead of making it, it will save $2569(50017-47448)

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