Question

X Company currently makes a part and is considering buying it from a company that has offered to supply it for $18.03 per unit. This year, per-unit production costs to produce 19,000 units were:

Direct materials	$8.30
Direct labor	5.00
Overhead	6.10
Total	$19.40

$57,000 of the total overhead costs were fixed. $34,200 of the fixed overhead costs are avoidable if X Company buys the part. If the company buys the part, the resources that are used to make it cannot be used for anything else. Production next year is expected to be 18,150 units.

If X Company buys the part instead of making it, it will save

A: $2,195

B: $3,183

C: $4,616

D: $6,692

E: $9,704

F: $14,071

Answer 1

	Variable overhead cost = 6.1*19000-57000	58900
	per unit variable overhead cost = 58900/19000	$     3.10
Option -1 : Cost of production
	i	Variable cost				297660
		(8.3+5+3.1)*18150
	ii	Relevant fixed cost				34200
	iii=i+ii	Total cost of manufacturing			331860
Option ii:	Cost of buying
	iv	Total cost of buying				327245
		18150*18.03
	v=iii-iv	Net saving =				4616
		Ans is option C_				$             4,616