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X Company is considering buying a part next year that they currently make. This year's production costs for 3,200 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 3,200 units were as follows:
Per-Unit | Total | ||
Direct materials | $2.56 | $8,192 | |
Direct labor | 3.25 | 10,400 | |
Variable overhead | 4.40 | 14,080 | |
Fixed overhead | 3.90 | 12,480 | |
Total | $14.11 | $45,152 |
A company has offered to supply this part to X Company for $13.42 per unit. If X Company accepts the offer, it will avoid fixed costs of $5,990, and it will be able to lease the resources that will become available from not making the part for $3,000. At what production level would X Company be indifferent between making and buying the part next year?
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