Question

X Company currently makes a part and is considering buying it next year from a company that has offered to supply it for $15.99 per unit. This year, total costs to produce 67,000 units were:

Direct materials			$435,500
Direct labor			361,800
Variable overhead			234,500
Fixed overhead			274,700

If X Company buys the part, $46,699 of the fixed overhead is avoidable. 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 71,400 units. If X Company buys the part instead of making it, it will save

Answer 1

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