Question
X Company is considering buying a part next year that they currently make. This year's per-unit production costs for 3,400 units were: Materials $3.36 Direct
X Company is considering buying a part next year that they currently make. This year's per-unit production costs for 3,400 units were: Materials $3.36 Direct labor [all variable] 3.42 Variable overhead 4.10 Fixed overhead 5.90 Total production costs $16.78 A company has offered to supply this part for $13.31 per unit. If X Company buys the part, $10,431 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 also expected to be 3,400 units.
At what production level would X Company be indifferent between making and buying the part?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started