Question
X Company currently buys a part from a supplier for $14.66 per unit but is considering making the part itself next year. This year, they
X Company currently buys a part from a supplier for $14.66 per unit but is considering making the part itself next year. This year, they purchased 3,200 units of this part; next year, they will need 3,500 units. Estimated costs to make the part next year are: Per-Unit Total Direct materials $3.55 $11,360 Direct labor 4.43 14,176 Variable overhead 3.80 12,160 Fixed overhead 5.00 16,000 Total $16.78 $53,696 Of the estimated fixed overhead, $8,160 would be additional fixed overhead costs; the remainder would be common costs allocated to the part. X Company currently receives $2,200 a year by renting unused factory space, but 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
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