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 $25.45 per unit. This year, production was 15,000 units; next year, production is expected to be 17,600 units. Total production costs for the part this year were:
Materials | $152,100 |
Direct labor | 136,950 |
Variable overhead | 82,800 |
Fixed overhead | 56,700 |
Total | $428,550 |
$7,938 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 a company for $3,500.
X Company is uncertain about its 17,600 unit production estimate for next year. At what level of production would X Company be indifferent between making and buying the part next year?
A: 13,572 | B: 15,337 | C: 17,330 | D: 19,583 | E: 22,129 | F: 25,006 |
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