Question
X Company currently buys a part from a supplier for $13.84 per unit but is considering making the part itself next year. This year, they
X Company currently buys a part from a supplier for $13.84 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 3,800 units. Estimated costs to make the part next year are:
Per-Unit | Total | ||
Direct materials | $3.16 | $10,428 | |
Direct labor | 4.18 | 13,794 | |
Variable overhead | 3.70 | 12,210 | |
Fixed overhead | 3.70 | 12,210 | |
Total | $14.74 | $48,642 |
Of the estimated fixed overhead, $6,593 would be additional fixed overhead costs; the remainder would be common costs allocated to the part. X Company currently receives $2,800 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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