Question

X Company is considering buying a part in 2020 that it has been making for the...

X Company is considering buying a part in 2020 that it has been making for the past several years. A company has offered to supply this part for $16.67 per unit. Budgeted production in 2020 is 58,000 units, and budgeted per-unit production costs are:

Materials $6.30

Direct labor [all variable] 6.00

Total overhead 4.40

Total $16.70

$98,600 of X Company's total overhead costs are fixed; $67,048 of the $98,600 are unavoidable even if it buys the part. Also, if X Company buys the part, it can rent the equipment that was used to make the part to another company for $75,000.

1. If X Company buys the part instead of making it, it will save ?

2. At what production level would X company be indifferent between making and buying the part ?

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