X Company currently makes a part and is considering buying it next year from a company that has offered to supply it for $15.44 per unit. This year, total costs to produce 66,000 units were: Direct materials Direct labor Variable overhead Fixed overhead $455,400 283,800 231,000 310,200 If X Company buys the part, $266,772 of the fixed overhead is unavoidable. The resources that will become idle if they choose to buy the part can be used to increase production of another product, resulting in additional total contribution margin of $10,000. The marketing manager estimates that demand next year will increase to 70,650 units. If X Company buys the part instead of making it, it will save Submit Answer Tries 0/3 X Company currently makes a part and is considering buying it from a company that has offered to supply it for $18.28 per unit. This year, per-unit production costs to produce 20,000 units were: Direct materials Direct labor Overhead Total $8.00 5.20 5.60 $18.80 $44,000 of the total overhead costs were fixed. $24,640 of the fixed overhead costs are avoidable if X Company buys the part. If the company buys the part, the resources that are used to make it cannot be used for anything else. Production next year is expected to be 20,850 units. If X Company continues to make the part instead of buying it, it will save Submit Answer Tries 0/3 X Company is considering buying a part next year that they currently make. This year's production costs for 3,500 units were as follows: Direct materials Direct labor Variable overhead Fixed overhead Total Per-Unit $3.72 3.19 3.20 4.80 $14.91 Total $13,020 11,165 11,200 16,800 $52,185 A company has offered to supply this part to X Company for $13.45 per unit. If X Company accepts the offer, it will still incur fixed costs of $7,896, but it will be able to lease the resources that will become available from not making the part for $2,000. At what production level would X Company be indifferent between making and buying the part next year? Submit Answer Tries 0/3 Questions 4 and 5 refer to the following problem: At the end of the year, a company offered to buy 4,630 units of a product from X Company for $12.00 each instead of the company's regular price of $17.00 each. The following income statement is for the 69,600 units of the product that X Company has already made and sold to its regular customers: Sales Cost of goods sold Gross margin Selling and administrative costs Profit $1,183,200 587,424 $595,776 179,568 $416,208 For the year, variable cost of goods sold were $433,608, and variable selling and administrative costs were $87,696. The special order product has some unique features that will require additional material costs of $0.71 per unit and the rental of special equipment for $3,000. 4. Profit on the special order would be Submit Answer Tries 0/3 5. The marketing manager thinks that if X Company accepts the special order, regular customers will be lost unless the selling price for them is reduced by $0.12. The effect of reducing the selling price will be to decrease firm profits by Submit Answer Tries 0/3 The following income statement is for X Company's two products, A and B: Product A $95,000 55,100 $39,900 Product B $92,000 54,280 $37,720 Revenue Total variable costs Total contribution margin Total fixed costs Avoidable Unavoidable Profit 16,292 11,798 $11,810 30,734 25,146 $-18,160 If X Company drops Product B because it shows a loss and is able to use the vacant space to increase sales of Product A by $29,900, with $3,600 of additional fixed costs, what will be the effect on firm profits? Submit Answer Tries 0/3 X Company is trying to decide whether to continue using old equipment to make Product A or replace it with new equipment that will have lower operating costs. The following information is available: The new equipment will cost $45,000. Disposal value at the end of its 5-year useful life will be $6,000. The old equipment was purchased 3 years ago for $24,000. It can be sold immediately for $5,000 but will have zero disposal value in 5 years. Maintenance work, costing $4,000, will be necessary on the old equipment in Year 4. The new equipment will result in $10,000 of operating cost savings each year. Assuming a discount rate of 7%, what is the net present value of replacing the old equipment with the new equipment? [Note: Use the Present Value tables in the Coursepack.] Submit Answer Tries 0/3 X Company has an opportunity to accept a special order that will result in immediate profit of $56,000. After doing some market research that cost $5,000, the marketing manager believes that if X Company accepts the order, the company will lose regular customers. Specifically, she believes the effect will be lost profits of $10,000 in each of the next 5 years. Assuming a discount rate of 5%, what is the net present value of accepting the special order? [Note: Use the Present Value tables in the Coursepack.] Submit Answer Tries 0/3 X Company currently buys 7,000 units of a part each year from a supplier for $8.20 per part, but it is considering making the part instead. In order to make the part, X Company will have to buy equipment that will cost $150,000. The equipment will last for 6 years, at which time it will have zero disposal value. X Company estimates that it will cost $26,890 a year to make all 7,000 units. What is the approximate rate of return if X Company makes the part instead of buying it from the supplier? [Note: 0.03 means 3%, etc.] Submit Answer Tries 0/3