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 it for $17.57 per unit. This year, per-unit production costs to produce 54,000 units were: Direct materials Direct labor Overhead Total $6.80 5.50 4.40 $16.70 $183,600 of the total overhead costs were variable; $18,360 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 $75,000. Production next year is expected to increase to 57,050 units. 3. If X Company continues to make the part instead of buying it, it will save 12286.5 Submit Answer Incorrect. Tries 1/5 Previous Tries 4. X Company is uncertain about next year's production level. At what production level wil the company be indifferent between making and buying the part? Submit Answer Tries 0/5

Explanation / Answer

ans)  

3) Total overhead = 57050 X 4.4 = 251020

Variable overhead = 183600

Fixed overhead = 251020 - 183600 = 67420

Cost of buying the part:

Variable cost = 57050 X $17.57 = 1,002,369

Fixed cost = 67420 - 18360 = 49060

Total cost of buying the part = 1002369 + 49060 = 1,051,429

Computation of making the part:

Direct materials = 57050 X 6.8 = 387940

Direct labour = 57050 X 5.5 = 313775

Overhead = 57050 X 4.4 = 251020

952735

Fixed cost = 67420   

1020155

Rent from resources (75000)

Total cost of making the part = 945155

Savings from making the product = 1051429 - 945155 = 106274

4) Change in fixed cost / change in variable cost per unit

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