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X Company is considering buying a part next year that they currently make. This year's production costs for 3,400 units were as follows: Per-Unit Total
X Company is considering buying a part next year that they currently make. This year's production costs for 3,400 units were as follows:
Per-Unit | Total | ||
Direct materials | $2.84 | $9,656 | |
Direct labor | 3.21 | 10,914 | |
Variable overhead | 4.40 | 14,960 | |
Fixed overhead | 3.40 | 11,560 | |
Total | $13.85 | $47,090 |
A company has offered to supply this part to X Company for $13.70 per unit. If X Company accepts the offer, it will still incur fixed costs of $6,127, but it will be able to lease the resources that will become available from not making the part for $2,600. At what production level would X Company be indifferent between making and buying the part next year?
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