X Company is considering buying a part next year that they
currently make. This year's production costs for 3,000 units were
A company has offered to supply this part to X Company for $12.92 per unit. If X Company accepts the offer, it will still incur fixed costs of $6,678, but it will be able to lease the resources that will become available from not making the part for $2,200. At what production level would X Company be indifferent between making and buying the part next year?
|Per unit||Total 3000 units|
|Avoidable fixed overhead||5922|
|Outside Purchase cost||12.92||38760|
|Difference in cost = 38760-37132 = 1628|
|Decrease in production level = 1628/(12.92-9.67)= 501|
|Indifferent production level = 3000-501= 2499|
|2499 is correct answer|
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