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 $25.82 per unit. This year, production was 13,500 units; next year, production is expected to be 17,350 units. Per-unit production costs for the part this year were:
Materials | $10.83 |
Direct labor | 8.00 |
Variable overhead | 6.42 |
Fixed overhead | 2.95 |
Total | $28.20 |
$30,665 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 a company for $3,750.
X Company is uncertain about its 17,350 unit production estimate for next year. At what level of production would X Company be indifferent between making and buying the part next year?
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