Question

X Company currently makes a part and is considering buying it next year from a company that has offered to supply it for $18.80 per unit. This year, total costs to produce 66,000 units were:

Direct materials			$547,800
Direct labor			389,400
Variable overhead			270,600
Fixed overhead			323,400

If X Company buys the part, $258,720 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 70,750 units. If X Company buys the part instead of making it, it will save

Answer 1

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