Question

X Company is considering buying a part in 2020 that it made in 2019. For 2020, the budgeted production cost function is $9.54X + $17,000, where X is the number of units produced. A company has offered to supply this part to X Company for $12.89 per unit. If X Company accepts the offer, it will still incur fixed costs of $8,160, and it will not be able to do anything with the resources that were used to produce the part. In 2019, 3,400 units of the part were produced; in 2020, 3,800 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? Submit Answer Tries 0/3

Answer 1

1
	Per unit		Total 3800 units
	Make	Buy	Make	Buy
Variable Costs to make	9.54		36252
Avoidable fixed overhead			8840
Outside Purchase cost		12.89		48982
Total cost	9.54	12.89	45092	48982
Savings in cost = 45092-48982 = 3890
Savings in cost = 3890
2
Decrease in production level = 3890/(12.89-9.54)= 1161
Indifferent production level = 3800-1161= 2639
Indifferent production level =2639