Question
X Company is considering buying a part next year that they currently make. This year's per-unit production costs for 3,000 units were: Materials $2.86 Direct
X Company is considering buying a part next year that they currently make. This year's per-unit production costs for 3,000 units were:
Materials | $2.86 |
Direct labor [all variable] | 3.68 |
Variable overhead | 2.70 |
Fixed overhead | 3.70 |
Total production costs | $12.94 |
A company has offered to supply this part for $11.73 per unit. If X Company buys the part, $6,438 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 $2,300. Production next year is also expected to be 3,000 units. At what production level would X Company be indifferent between making and buying the part?
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