Question

A company manufactures part XYZ used in several of its productes. Monthly production costs for 19,000 units are as follows:

Direct Materials	$1,235,000
Direct Labor	$285,000
Variable Overhead Costs	$190,000
Fixed Overhead Costs	$250,000
Total Costs	$1,960,000

It is estimated that 70% of the fixed overhead costs assigned to XYZ will no longer be incurred if the company purchases XYZ from an outside supplier. The company has the option of purchasing the part from an outside supplier at $100 per unit.

-If the company accepts the offer from the outside supplier, calculate the monthly avoidable costs.

-If the company purchases 19,000 XYZ parts from the outside supplier per month, calculate the increase/(decrease) in monthly operating income.

-Calculate the maximum per-unit price that the company should be willing to pay an outside supplier for XYZ.

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and format. For detailed answer refer to the supporting sheet.