Question
X Company is considering buying a part next year that they currently make. This year's production costs for 3,200 units were: Total Per-Unit Materials $8,512
X Company is considering buying a part next year that they currently make. This year's production costs for 3,200 units were:
Total | Per-Unit | |
Materials | $8,512 | $2.66 |
Direct labor [all variable] | 15,936 | 4.98 |
Variable overhead | 10,880 | 3.40 |
Fixed overhead | 9,920 | 3.10 |
Totals | $45,248 | $14.14 |
A company has offered to supply this part for $13.38 per unit. If X Company buys the part, $4,960 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 $2,700. Production next year is also expected to be 3,200 units.
3. If X Company buys the part instead of making it, it will save
4. X Company is uncertain what production will be next year. At what production level would it be indifferent between making and buying the part?
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