Question

X Company is considering buying a part in 2020 that it made in 2019. For 2020, the budgeted production cost function is $10.16X + $18,000, where X is the number of units produced. A company has offered to supply this part to X Company for $13.42 per unit. If X Company accepts the offer, it will avoid fixed costs of $9,180, 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. If X Company makes the part in 2020 instead of buying it, it will save Submit Answer 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)
	Cost Of Buying = 3500 Units *$13.42				$       46,970
	Cost Of Manufacturing = Variable cost + Avoidable Fixed Cost
			= ($10.16 *3500 Units) +$9180
			=$44740
	Therefore Benefit of manufacturing = $46970-$44740
				=$2230
	( Dear student please note that its not a -$2230 its positive $2230)
2)	Production level would X Company be indifferent
		X* Buying Cost Per Unit = X* variable cost per unit + fixed cost
		X*13.42 = (X*10.16) + $9180
		13.42X - 10.16X =$9180
		=2815.95	Units
		OR
		=2816 Units (Rounded Off )