Question
X Company currently buys a part from a supplier for $12.67 per unit but is considering making the part itself next year. This year, they
X Company currently buys a part from a supplier for $12.67 per unit but is considering making the part itself next year. This year, they purchased 3,000 units of this part; next year, they think they will need 3,500 units. Estimated costs to make the part are:
Per-Unit | Total | ||
Direct materials | $3.58 | $10,740 | |
Direct labor | 3.59 | 10,770 | |
Variable overhead | 3.10 | 9,300 | |
Fixed overhead | 3.90 | 11,700 | |
Total | $14.17 | $42,510 |
Of the estimated fixed overhead, $5,733 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 $3,000; 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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