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X Company is considering buying a part next year that they currently make. This year's per-unit production costs for 87,000 units of this part were:
X Company is considering buying a part next year that they currently make. This year's per-unit production costs for 87,000 units of this part were:
Materials | $6.56 |
Direct labor | 5.93 |
Variable overhead | 3.23 |
Fixed overhead | 1.76 |
Total | $17.48 |
A company has offered to supply this part for $16.12 per unit. If X Company buys the part, $105,653 of the total fixed overhead is unavoidable, and there is no alternative use of the resources that will become idle. Production next year is expected to be 82,000 units.
If X Company buys the part instead of continuing to make it, it will save?
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