X Company currently buys a part from a supplier for $12.96 per unit but is consi

Question

X Company currently buys a part from a supplier for $12.96 per unit but is considering making the part itself next year. This year, they purchased 3,300 units of this part; next year, they think they will need 3,800 units. Estimated costs to make the part are:

Of the estimated fixed overhead, $6,669 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 $2,800; 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 $3.57    $11,781    Direct labor 3.11    10,263    Variable overhead 3.90    12,870    Fixed overhead 4.70    15,510    Total $15.28    $50,424   

Explanation / Answer

If X Company continues to buy the part instead of making it, it will save $2,597

For making the product Per-Unit Total      Direct materials $3.57 $13,566.00 Direct labor $3.11 $11,818.00 Variable overhead $3.90 $14,820.00 Fixed overhead $2.33 $8,841.00 Rent foregone $0.74 $2,800.00 Total $13.64 $51,845.00

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