Question
X Company is considering buying a part next year that they currently make. This year's production costs for 3,100 units were: Total Per-Unit Direct materials
X Company is considering buying a part next year that they currently make. This year's production costs for 3,100 units were:
Total | Per-Unit | ||
Direct materials | $8,339 | $2.69 | |
Direct labor | 9,641 | 3.11 | |
Variable overhead | 8,370 | 2.70 | |
Fixed overhead | 11,160 | 3.60 | |
Total | $37,510 | $12.10 |
A company has offered to supply this part for $11.00 per unit. If X Company buys the part, $6,138 of the fixed overhead can be avoided. Also if X Company buys the part, it can use the freed-up resources to increase production of another product, resulting in additional contribution margin of $2,500. Production next year is expected to be 3,600 units.
1) If X Company continues to make the part instead of buying it, it will save ______?
2) X Company is uncertain what production will be next year. What production level would make X Company indifferent between making and buying the part?
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