Question

X Company currently makes a part and is considering buying it next year from a company that has offered to supply it for $15.15 per unit. This year, total costs to produce 68,000 units were:

Direct materials			$367,200
Direct labor			353,600
Variable overhead			258,400
Fixed overhead			319,600

If X Company buys the part, $41,548 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 $15,000.

The marketing manager estimates that demand next year will increase to 72,200 units. If X Company buys the part instead of making it, it will save

Answer 1