Question

X Company currently makes a part and is considering buying it next year from a company that has offered to supply it for $16.24 per unit. This year, total costs to produce 70,000 units were:

Direct materials			$490,000
Direct labor			350,000
Variable overhead			252,000
Fixed overhead			343,000

If X company buys the part $274,400 of the fixed overhead is unavoidable. The resources that will become idle if they choose to buy the part can be used to increase production of another product, resulting in additional total contribution margin of $10,000.

The marketing manager estimates that demand next year will increase to 74,650 units. If X Company buys the part instead of making it, it will save

Answer 1