Question

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 $16.47 per unit. Budgeted production in 2020 is 53,000 units, and budgeted per-unit production costs are: Materials $6.10 Direct labor 4.60 [all variable] Total 5.70 overhead Total $16.40 $90,100 of X Company's total overhead costs are fixed; $62,169 of the $90,100 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 $80,000 3. If X Company buys the part instead of making it, it will save Tries 0/3 Submit Answer 4. At what production level would X company be indifferent between making and buying the part?

Answer 1

Solution Given data, htaterras Oirect aboY -60 taloverhead $16-40 Dta aty Dfferane Malse rchase pice 64153000) ST2910 Dive et Materals.(6.10d530vo 323300 Direct labovr (4-60x 53000 243800 Celeant fixed over head (9o10D-6 2.16921931 Vaxialle overhed (53000x1)-9OuD 212 000 of ixed ouor head opportunitt os G00DD ST2910 887031 J4121 Tota 2wil Save$14121

Cu) Let be +he indifference point pooti b af fixed Cost Vaniable 12000 Dtal vaotakle poshon of maike altemative G10460 +y fixed elemeuts inder wake alternatibes are 27 931 8000D oppostunü ty cost L07 931 lb.47 pex unit Buy ing alternative ic fully vagidble A ndifferent pant- 4.1%lon931= 16.41X 107931= 1-713 R=$60971.966

Solution's Given data Material Direct labor 4010 5.70 Total overhead Total $1640 Difference . Buy 872910 Malse purchase price (16.47953000) Direct materials (6-1015300D 1323300. Direct laborg (4.60*53000) | 243800 relevant fived overy head (90100-62169 27931 vagialle.overhed (5300x5-1)-90100 212.000 of fixed overhead Opportunity cost 80000 Total :1887031 872910 14121 It will save $14121.

Let xl be the indifference point. variable portion of fixed cost = 212000 53000 Total variable portion of make alternative = 6:10+4.60 +4 =$14.7 fixed elements under make alternatives are 27931 + 80oud opportunity cost 7 107931. Buying alternative is fully variable @ 16.47 per unit At indifferent point : 14.1X + 107931=16.47% 1079311772 *=$60977.966