Question

Company is considering buying a part in 2020 that it has been making for the past several years. A company has offered upply this part for $15.84 per unit. Budgeted production in 2020 is 50,000 units, and budgeted per-unit production costs Materials Direct labor all variable $6.20 06T Total overhead 00 $15.10 Total D of X Company's total overhead costs are fixed; S46,800 of the $60,000 are unavoidable even if it buys the part. Also- mpany buys the part, it can rent the equipment that was used to make the part to another company for $70,000. fX Company continues to make the part instead of buying it, it will save 10800 BO $10,376 CO $13,800 DO $18,354 EO $24,411 FO $32,466 what production level would X company be indifferent between making and buying the part? ,246 BO 42,887 CO 57,039 DO 75,862 EO 100,897 FO 134,192

Answer 1

1
	Per unit		Total 50000 units
	Make	Buy	Make	Buy
Direct materials	6.2		310000
Direct labor	4.9		245000
Variable overhead	2.8		140000
Avoidable fixed overhead			13200
Opportunity cost			70000
Outside Purchase cost		15.84		792000
Total cost	13.90	15.84	778200	792000
Savings in cost = 778200-792000 = $13800
Option C $13,800 is correct
2
Decrease in production level = 13800/(15.84-13.90)= 7113
Indifferent production level = 50000-7113=42887
Option B 42,887 is correct