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 $26.82 per unit. This year, production was 15,000 units; next year, production is expected to be 17,900 units. Per-unit production costs for the part this year were:
Materials | $10.76 |
Direct labor | 9.15 |
Variable overhead | 6.26 |
Fixed overhead | 2.66 |
Total | $28.83 |
$27,930 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 $2,750.
X Company is uncertain about its 17,900 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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