Question

X Company is considering buying a part in 2020 that it made in 2019. For 2020, the budgeted production cost function is $10.65X + $12,400, where X is the number of units produced. A company has offered to supply this part to X Company for $13.75 per unit. If X Company accepts the offer, it will still incur fixed costs of $6,076, and it will not be able to do anything with the resources that were used to produce the part. In 2019, 3,100 units of the part were produced; in 2020, 3,600 units will be needed. 1. If X Company makes the part in 2020 instead of buying it, it will save ( Submit Answer) Tries 0/3 2. At what production level would X Company be indifferent between making and buying the part in 2020? (

Answer 1

Total cost of production in 2020 for 3600 units =

10.65×3600 + $12400 = $50740

If offer is accepted = $13.75 × 3600 + $6076 = $55576

Cost saved shall be = $4836

2. Indifferent shall be at =

10.65X + $12400 = 13.75X + $6076

3.1X = $6324

X = 2040 units answer