Question
X Company currently buys a part from a supplier for $14.01 per unit but is considering making the part itself next year. This year, they
X Company currently buys a part from a supplier for $14.01 per unit but is considering making the part itself next year. This year, they purchased 3,300 units of this part; next year, they will need 3,600 units. Estimated costs to make the part next year are:
Per-Unit | Total | ||
Direct materials | $3.03 | $9,999 | |
Direct labor | 4.45 | 14,685 | |
Variable overhead | 3.80 | 12,540 | |
Fixed overhead | 5.70 | 18,810 | |
Total | $16.98 | $56,034 |
Of the estimated fixed overhead, $9,593 would be additional fixed overhead costs; the remainder would be common costs allocated to the part. X Company currently receives $2,000 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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