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 $16.12 per unit. Budgeted production in 2020 is 58,000 units, and budgeted per-unit production costs are:

Materials	$6.10
Direct labor [all variable]	4.60
Total overhead	4.90
Total	$15.60

$75,400 of X Company's total overhead costs are fixed; $58,812 of the $75,400 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.

3. If X Company continues to make the part instead of buying it, it will save $18,972

You are correct. Your receipt no. is 156-2511

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4. At what production level would X company be indifferent between making and buying the part? 21515

Incorrect.

Tries 1/3

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Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and format. For detailed answer refer to the supporting sheet.

Answer 26 Part 3) 27 The saving will be = Relevant cost of Purchase -relevant cost of making of 58000 units 28 = ((16.12*58000)-70000) - ((6.1+4.6+3.6)*58000 + (75400-58812)) 29 = $ 18972 31 Thus the correct answer is $ 18972 33 Note variable cost per unit = ((4.9*58000)-75400)/58000 34 = $ 3.6 36 Part 4) 37 Point of indifference = Y units 39 Relevant purchase cost = relevant manufacture cost 10 ((16.12*Y)-70000) = ((6.1+4.6+3.6) *Y + (75400-58812)) 41 16.12Y - 70000 = 14.3Y +16588 42 16.12Y-14.3Y = 16588 +70000 43 Y = 86588/1.82 44 Y = 47576 units (rounded off to nearest whole number)