Questions - X Company currently makes a part and is considering buying it from a company has offered to supply it for $16.10 per unit. This year, per-unit production costs to produce 57,000 units were:
|
Direct materials
|
$5.40
|
|
Direct labor
|
5.20
|
|
Overhead
|
5.30
|
|
Total
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$15.90
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$216,600 of the total overhead costs were variable; $33,345 of the fixed overhead costs can be avoided if X Company buys the part. In addition, the resources that were used for production can be rented to another company for $70,000. Production next year is expected to increase to 60,150 units.
Required -
1. If X Company buys the part instead of making it, it will save
2. X Company is uncertain about next year's production level. At what production level will the company be indifferent between making and buying the part?