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 $16.64 per unit. Budgeted production in 2020 is 51,000 units, and budgeted per-unit production costs are: Materials $6.60 Direct labor [all variable] 4.10 Total overhead 5.20 Total $15.90 $56,100 of X Company's total overhead costs are fixed; $40,392 of the $56,100 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 $75,000 3. If X Company continues to make the part instead of buying 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? Tries 0/3 Submit Answer

Answer 1

a) Differential analysis

	Make	Buy
Direct material	336600
Direct labor	209100
Variable overhead	209100
Fixed overhead	15708
Opportunity Cost	75000
Purchase cost		848640
Total relevant cost	845508	848640

it will save = 848640-845508 = 3132

b) Indifferent point

Manufacturing cost = Purchase cost

14.80X+90708 = 16.64X

-1.84X = 90708

X(Unit) = 49298 Units