Question

Questions 1 and 2 refer to the following Information: X Company is considering buying a part in 2020 that made in 2019. For 2010, the budgeted production cost function is $11.78X $13,300, where is the number of units produced. A company has offered to supply this part to X Company for $15.05 per unit. If X Company accepts the offer, it will avoid fixed costs of $6,650, but it will not be able to do anything with the resources that were used to produce the part. In 2019, 3,500 units of the part were produced in 2020, 3,800 units will be needed. 1. If X Company makes the part in 2020 instead of buying it, it will save Submit Awe Tries 0/3 2. At what production level would X Company be indifferent between making and buying the part in 2020? S om Tries 0/3

Answer 1

Savings = cost of buying - Avoidable cost of making

= 15.05*3800 – (11.78*3800 + 6650)

= $5,776

2.Indifference level = Avoidable fixed costs/Difference in variable cost per unit

= 6650/(15.05-11.78)

= 2033.64 Units