Question

mpany be indifferent between making and buying the part in 2020 DO 2,387 2. AO 1,490 вО 1,743 CO 2,040 ЕО 2,792 Questions 3 and 4 refer to the following information: FO 3,267 X Company is considering buying a part in 2020 that it has been making for the past several years. A company has offered cO supply this part for $16.90 per unit. Budgeted production in 2020 is 52,000 units, and budgeted per-unit production costs are: Materials Direct labor [all variable Total overhead Total $6.00 5.90 4.30 $16.20 $52,000 of X Company's total overhead costs are fixed; $34,320 of the $52,000 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. 8 pt 3. If X Company continues to make the part instead of buying it, it will save FO $2,197 EO $1,758 DO $1,406 CO $1,125 BO $900 3. AO $720 8 pt 4. At what production level would X company be indifferent between making and buying the part? DO 68,597 FO 121,341 EO 91,234 СО 51,576 BO 38,779 AO 29,157 4.

Answer 1

3. Variable overhead = Total overhead - Fixed overhead

= (52,000 * $4.3) - $52,000

= $171,600

Variable overhead cost per unit = $171,600 / 52,000

= $3.3

Avoidable fixed cost = $52,000 - $34,320

= $17,680

Relevant costs to make = (Direct materials per unit + Direct labor per unit + Variable overhead per unit) * Units + Avoidable fixed cost + Opportunity cost of lost rent

= ($6 + $5.9 + $3.3) * 52,000 + $17,680 + $70,000

= $878,080

Relevant cost to buy = 52,000 * $16.9

= $878,800

Savings = $878,800 - $878,080

= $720

The answer is A.

4. Let the production level be P

(Direct materials per unit + Direct labor per unit + Variable overhead per unit) * Units + Avoidable fixed cost + Opportunity cost of lost rent = $15.56 P

($6 + $5.9 + $3.3) * P + $17,680 + $70,000 = $16.9 P

$1.7 P = $87,680

P = $51,576

The answer is C.