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 $17.49 per unit. Budgeted production in 2020 is 50,000 units, and budgeted per-unit production costs are: Materials $6.60 Direct labor all variable) 5.20 Total overhead 5.90 Total $17.70 Company's total overhead costs are fixed; $77,000 of the $100,000 are unavoidable even if it buys the part Patiy buys the part, it can rent the equipment that was used to make the part to another company for $80,000 pts. If X Company buys the part instead of making it, it will save 123 BO $9,862 CO $11,538 DO $13,500 EO $15,795 FO $18,480 Pr. At what production level would X company be indifferent between making and buying the p AO 49,181 BO 67,542 CO 67,324 DO 78,769 EO 92,160 FO 107,827

Answer 1

3
	Per unit		Total 50000 units
	Make	Buy	Make	Buy
Direct materials	6.6		330000
Direct labor	5.2		260000
Variable overhead	3.9		195000
Avoidable fixed overhead			23000
Opportunity cost			80000
Outside Purchase cost		17.49		874500
Total cost	15.70	17.49	888000	874500
Savings in cost = 888000-874500 = $13500
Option D $13,500 is correct
4
Increase in production level = 13500/(17.49-15.70)= 7542
Indifferent production level = 50000+7542 = 57542
Option B 57,542 is correct