1) Differential analysis
Make | Buy | |
Direct material (3700*3.85) | 14245 | |
Direct labour (3700*3.65) | 13505 | |
Variable overhead (3700*3.50) | 12950 | |
Fixed overhead (12800-6400) | 6400 | |
Opportunity Cost | 2100 | |
Purchase cost (3700*14.85) | 54945 | |
Total relevant cost | 49200 | 54945 |
it will save = 54945-49200 = $5745
2) Indifferent point
Make Cost = Purchase cost
11X+8500 = 14.85X
-3.85X = -8500
X(indifferent point) = 8500/3.85 = 2208 Units
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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 $18.03 per unit. Budgeted production in 2020 is
52,000 units, and budgeted per-unit production costs are:
Materials
$6.50
Direct labor [all variable]
5.80
Total overhead
5.30
Total
$17.60
$78,000 of X Company's total overhead costs are fixed; $50,700 of
the $78,000 are unavoidable even if it buys the part. Also, if X...