Question

Ulowing information: Company is considering buying a part in 2020 that it made in 2019. For 2020, the budgeted production cost function $10.99X + $10,540, where X is the number of units produced. A company has offered to supply this part to X Company for $14.48 per unit. If X Company accepts the offer, it will avoid fixed costs of $5,586, but it will not be able to do anything with the resources that were used to produce the part. In 2019, 3,400 units of the part were produced; in 2020, 3,700 units will be needed 8 pt 1. If X Company makes the part in 2020 instead of buying it, it will save 1. AO $1,143 BO $1,657 CO 82,403 DO $3,485 EO $5,053 FO 57,327 8 pt 2. At what production level would X Company be indifferent between making and buying the part in 20207 2. AO 982 BO 1,109 CO 1,254 DO 1,416 EO 1,601 FO 1,809

Answer 1

1. Relevant costs to buy = 3,700 * $14.48 per unit

= $53,576

Relevant costs to make = ($10.99 * 3,700) + $5,586

= $46,249

Savings = $53,576 - $46,249

= $7,327

The answer is F.

2. Let the production level be P

$10.99 P + $5,586 = $14.48 P

$3.49 P = $5,586

P = 1,601

The answer is E.