Question

X Company is considering buying a part next year that it currently makes. A company has offered to supply this part for $14.57 per unit. This year's total production costs for 53,000 units were: Materials $302,100 Direct labor 238,500 Total overhead 222,600 $132,500 of X Company's total overhead costs were variable; $34,238 of X Company's fixed overhead costs can be avoided if it buys the part. If X Company buys the part, there are no alternative uses of the resources that were used for its production. Production next year is expected to increase to 56,550 units.

3. If X Company continues to make the part instead of buying it, it will save

4. X Company has an opportunity to negotiate the purchase price with the supplier. What purchase price would make X Company indifferent between making and buying?

Answer 1

3
	Per unit		Total 56550 units
	Make	Buy	Make	Buy
Direct materials	5.70		322335
Direct labor	4.50		254475
Variable overhead	2.50		141375
Avoidable fixed overehead			34238
Outside Purchase cost		14.57		823933.5
Total cost	12.70	14.57	752423	823933.5
Savings in cost = 823933.5-752423 = $71510.50 or $71511
4
Decrease in production level = 71510.5/(14.57-12.70)= 38241
Indifferent production level = 56550-38241= 18309
Note: There is no information provided regarding rounding off
The answers have been rounded to higher decimal place. So answer might vary + 1