X Company is considering buying a part next year that they currently make. This year's per-unit production costs for 3500 units were: Materials: $3.02 Direct labor (all variable): 3.66 Variable overhead: 3.30 Fixed overhead: 6.00 Total production costs: $15.98 A company has offered to supply this part of $12.38 per unit. If X Company buys the part, $12180 of the fixed overhead can be avoided. Also, if X Company buys the part, it can use the freed-up resource to increase the production of another product, resulting in an additional contribution margin of $2400. Production next year is also expected to be 3500 units. 1. IfX Company buys the part instead of making it, how much will it save? 2. At what production level would X Company be indifferent between making and buying the part?
X Company is considering buying a part next year that they currently make. This year's per-unit production costs for 3500 units were: Materials: $3.02 Direct labor (all variable): 3.66 Variable overhead: 3.30 Fixed overhead: 6.00 Total production costs: $15.98 A company has offered to supply this part of $12.38 per unit. If X Company buys the part, $12180 of the fixed overhead can be avoided. Also, if X Company buys the part, it can use the freed-up resource to increase the production of another product, resulting in an additional contribution margin of $2400. Production next year is also expected to be 3500 units. 1. IfX Company buys the part instead of making it, how much will it save? 2. At what production level would X Company be indifferent between making and buying the part?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:X Company is considering buying a part next year that they currently make. This
year's per-unit production costs for 3500 units were:
Materials: $3.02
Direct labor (all variable): 3.66
Variable overhead: 3.30
Fixed overhead: 6.00
Total production costs: $15.98
A company has offered to supply this part of $12.38 per unit. If X Company buys the
part, $12180 of the fixed overhead can be avoided. Also, if X Company buys the
part, it can use the freed-up resource to increase the production of another product,
resulting in an additional contribution margin of $2400. Production next year is also
expected to be 3500 units.
1. IfX Company buys the part instead of making it, how much will it save?
2. At what production level would X Company be indifferent between making and
buying the part?
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