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 $26.61 per unit. This year, production was 12,500 units; next year, production is expected to be 15,650 units. Per-unit production costs for the part this year were:
Materials | $10.27 |
Direct labor | 9.29 |
Variable overhead | 6.36 |
Fixed overhead | 3.95 |
Total | $29.87 |
$39,006 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 $2,000.
X Company is uncertain about its 15,650 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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