Question

Questions 3 and 4 refer to the following information:

X Company is considering buying a part next year that it currently makes. A company has offered to supply this part for $15.82 per unit. This year's total production costs for 55,000 units were:

Materials	$357,500
Direct labor	242,000
Total overhead	280,500

$187,000 of X Company's total overhead costs were variable; $32,725 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 59,000 units.

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

Tries 0/3

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?  

Tries 0/3

Answer 1

3
	Per unit		Total 59000 units
	Make	Buy	Make	Buy
Direct materials	6.5		383500
Direct labor	4.4		259600
Variable overhead	3.4		200600
Avoidable fixed overehead			32725
Opportunity cost			0
Outside Purchase cost		15.82		933380
Total cost	14.3	15.82	876425	933380
Savings in cost = 933380-876425 = $56955
4
Indifferent price = 15.82-(56955/59000)= $14.85
Note: There is no information provided regarding rounding off for question 2.
The answer has been rounded to 2 decimal places.