Question

Questions 3 and 4 refer to the following information: 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 $15.85 per unit. Budgeted production in 2020 is 52,000 units, and budgeted per-unit production costs are: Materials $6.80 Direct labor (all variable] 4.30 Total overhead 4.20 Total $15.30 $72,800 of X Company's total overhead costs are fixed; 846,592 of the $72,800 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. IC X Company continues to make the part instead of buying it, it will save 3. AO 81,066 BO $4,595 CO $5,192 DO $5,867 EO 86,630 FO $7,492 8 pt. At what production level would X company be indifferent between making and buying the part? 4. AO 34,026 BO 49,337 CO 71,539 DO 103,732 EO 150,411 FO 218,096

Answer 1

Answer 3 : C $5192

	Per unit differential costs		52000 Units
	Make	Buy	Make	Buy
Cost of purchasing		$    15.85		$     824,200
Cos of making
Direct Material	$       6.80		$ 353,600
Direct Labor	$       4.30		$ 223,600
Variable overhead	$       2.80		$ 145,600
Fixed overhead			$    72,800	$        46,592
Total Cost	$    13.90	$    15.85	$ 795,600	$     870,792
Less: Additional income from letting of facility				70000
Net Cost			$ 795,600	$     800,792
Net decrease in profit if bought = $800792-$795600 =				$          5,192

Answer 4 B . 49337

Calculated as

Additional benefit from accepting offer = saving in fixed cost + rental income

= $26208+$70000

= $96208

Additional variable cost per unit if bought = $15.85-$13.90 = $1.95

So indifference point = change in net fixed benefit/additional variable cost per unit = $96208/$1.95 = 49337 units

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