Question
X Company is considering buying a part in 2020 that it made in 2019. For 2020, the budgeted production cost function is $10.43X + $9,000,
X Company is considering buying a part in 2020 that it made in 2019. For 2020, the budgeted production cost function is $10.43X + $9,000, where X is the number of units produced. A company has offered to supply this part to X Company for $13.66 per unit. If X Company accepts the offer, it will still incur fixed costs of $4,770, and it will not be able to do anything with the resources that were used to produce the part. In 2019, 3,000 units of the part were produced; in 2020, 3,400 units will be needed.
1. If X Company makes the part in 2020 instead of buying it, it will save?
2. At what production level would X Company be indifferent between making and buying the part in 2020?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started