Question

X Company currently makes a part and is considering buying it from a company that has offered to supply it for $19.65 per unit. This year, per-unit production costs to produce 18,000 units were:

Direct materials	$8.40
Direct labor	5.20
Overhead	7.10
Total	$20.70

$46,800 of the total overhead costs were fixed. $20,124 of the fixed overhead costs are unavoidable if X Company buys the part. If the company buys the part, the resources that are used to make it cannot be used for anything else. Production next year is expected to be 18,750 units.

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

A: $1,909

B: $2,387

C: $2,983

D: $3,729

E: $4,661

F: $5,826

Answer 1

	fixed overhead	46800/18000
			2.6
	hence variable overhead =7.10-2.60
			4.5
			Make	buy	Saving
purchase price			368438
Direct materials		157500
direct labor		97500
variable overhead		84375
fixed overhead		46,800	20,124
total			386175	388561.5	2387
answer)	option B
	2,387