Question
X Company currently buys a part from a supplier for $13.75 per unit but is considering making the part itself next year. This year, they
X Company currently buys a part from a supplier for $13.75 per unit but is considering making the part itself next year. This year, they purchased 3,500 units of this part; next year, they will need 4,000 units. Estimated costs to make the part next year are:
Per-Unit Total
Direct materials $3.47 $12,145
Direct labor 3.01 10,535
Variable overhead 4.40 15,400
Fixed overhead 4.40 15,400
Total $15.28 $53,480
Of the estimated fixed overhead, $9,086 would be additional fixed overhead costs; the remainder would be common costs allocated to the part. X Company currently receives $2,300 a year by renting unused factory space, but it will have to use this space to make the part. If X Company makes the part instead of continuing to buy it, it will save_____
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