Question

Questions 3 and 4 refer to the following information: 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 $17.20 per unit. Budgeted production in 2020 is 56,000 units, and budgeted per-unit production costs are: S6.20 5.60 Materials Direct labor (all variable) Total overhead Total 5.40 $17.20 $100,800 of X Company's total overhead costs are fixed; $79,632 of the $100,800 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 $70,000 8 pts. If X Company continues to make the part instead of buying it, it will save 3. AO $8,112 BO 89,491 CO $11,101 DO $12,992 EO $15,201 FO $17.785 8 pt. At what production level would X company be indifferent between making and buying the part? 4. A 49,015 BO 55,387 CO 62,587 DO 70,724 E 79,918 FO 90,307

Answer 1

3) Differential analysis

	Make	Buy
Direct material (56000*6.2)	347200
Direct labor (56000*5.6)	313600
variable overhead	201600
Fixed overhead	21168
Opportunity Cost	70000
Purchase cost (56000*17.26)		966560
Total relevant cost	953568	966560

it will save = 12992

So answer is d) $12992

b) Indifference point

Manufacturing cost = Buying cost

15.40X+91168 = 17.26X

X1.86 = 91168

X = 49015

So answer is a) 49015