Question
X Company no longer has the space necessary to produce all of its parts. A company has offered to supply one of X Company's parts
X Company no longer has the space necessary to produce all of its parts. A company has offered to supply one of X Company's parts for $26.99 per unit. This year, production was 13,500 units; next year, production is expected to be 17,000 units. Total production costs for the part this year were:
Materials | $153,900 |
Direct labor | 124,335 |
Variable overhead | 78,840 |
Fixed overhead | 34,425 |
Total | $391,500 |
$5,508 of X Company's fixed overhead can be avoided if it buys the part. In addition, if X Company buys the part, it will be able to rent some equipment that will no longer be needed, to another company for $4,000.
If X Company buys the part instead of continuing to make it, it will save
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored 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