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 $27.09 per unit. This year, production was 11,500 units; next year, production is expected to be 15,000 units. Total production costs for the part this year were:
Materials | $119,025 |
Direct labor | 113,965 |
Variable overhead | 71,530 |
Fixed overhead | 27,485 |
Total | $332,005 |
$23,912 of X Company's fixed overhead cannot be avoided even 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 $3,000.
1. If X Company continues to make the part, it will save
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