Question: X Company is considering buying a part next year that they currently make. This year's production costs for 3,100 units were:
|
Total |
Per-Unit |
| Direct materials |
$11,842 |
$3.82 |
| Direct labor |
12,121 |
3.91 |
| Variable overhead |
13,330 |
4.30 |
| Fixed overhead |
12,090 |
3.90 |
| Total |
$49,383 |
$15.93 |
A company has offered to supply this part for $14.44 per unit. If X Company buys the part, $6,650 of the fixed overhead can be avoided. Also if X Company buys the part, it can use the freed-up resources to increase production of another product, resulting in additional contribution margin of $2,200. Production next year is expected to be 3,400 units.
2. If X Company buys the part instead of making it, it will save
3. X Company is uncertain what production will be next year. What production level would make X Company indifferent between making and buying the part?