Question

X Company currently makes a part and is considering buying it next year from a company that has offered to supply it for $16.48 per unit. This year, total costs to produce 68,000 units were:

Direct materials			$476,000
Direct labor			340,000
Variable overhead			238,000
Fixed overhead			312,800

If X Company buys the part, $31,280 of the fixed overhead is avoidable. 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 72,150 units. If X Company continues to make the part instead of buying it, it will save

Answer 1