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 $26.56 per unit. This year, production was 11,500 units; next year, production is expected to be 15,300 units. Total production costs for the part this year were:
Materials | $131,100 |
Direct labor | 101,430 |
Variable overhead | 66,240 |
Fixed overhead | 24,495 |
Total | $323,265 |
$17,146 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 $2,250.
X Company is uncertain about its 15,300 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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