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X Company is considering buying a part next year that they currently make. This year's production costs for 3,500 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 3,500 units were as follows:
Per-Unit | Total | ||
Direct materials | $3.11 | $10,885 | |
Direct labor | 3.34 | 11,690 | |
Variable overhead | 2.60 | 9,100 | |
Fixed overhead | 3.90 | 13,650 | |
Total | $12.95 | $45,325 |
A company has offered to supply this part to X Company for $12.22 per unit. If X Company accepts the offer, it will still incur fixed costs of $7,508, but it will be able to lease the resources that will become available from not making the part for $2,100. At what production level would X Company be indifferent between making and buying the part next year?
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