Question

Questions 1 and 2 refer to the following information: X Company is considering buying a part in 2020 that it made in 2019. For 2020, the budgeted production cost function is $9.76X + $14,100, where X is the number of units produced. A company has offered to supply this part to X Company for $13.07 per unit. If X Company accepts the offer, it will avoid fixed costs of $7,473, but it will not be able to do anything with the resources that were used to produce the part. In 2019, 3,000 units of the part were produced; in 2020, 3,500 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

Answer :- U Total cost of making a part = ($9.76 * 3500)+ $ 14,100 in 2020 = $34160 + $14100 = $48,260 To teu cost of buying a part in 2020 = (3500 Uhuis x $13007) +$7473 = $53,218 $ 53,218 - $ 46,260 Total cost saving for making a part = $4958 fixed cost difference in 124 Indifference port = difference in variable cost perunt $14100 - $7473 $13.07. - $9.76 $6627 $ 3.31 per unit = 2002 unils At 2002 units, x company be indifferent between making and buying the part in 2020.