Question
X Company currently buys a part from a supplier for $14.49 per unit but is considering making the part itself next year. This year, they
X Company currently buys a part from a supplier for $14.49 per unit but is considering making the part itself next year. This year, they purchased 3,100 units of this part; next year, they think they will need 3,400 units. Estimated costs to make the part are:
Per-Unit | Total | ||
Direct materials | $3.98 | $12,338 | |
Direct labor | 4.01 | 12,431 | |
Variable overhead | 4.10 | 12,710 | |
Fixed overhead | 5.10 | 15,810 | |
Total | $17.19 | $53,289 |
Of the estimated fixed overhead, $6,482 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 $2,800; 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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