Question

X Company is considering buying a part next year that they currently make. This year's production costs for 3,300 units were as follows: Per-Unit Total Direct $2.92 $9,636 materials 4.89 16,137 Direct labor Variable overhead 2.80 9.240. Fixed overhead 4.90 16,170 Total $15.51 $51,183 A company has offered to supply this part to X Company for $13.81 per unit. If X Company accepts the offer, it will still incur fixed costs of $7,276, but it will be able to lease the resources that will become available from not making the part for $2,400. At what production level would X Company be indifferent between making and buying the part next year? * Tries 0/3

Answer 1

	Per unit		Total 3300 units
	Make	Buy	Make	Buy
Direct materials	2.92		9636
Direct labor	4.89		16137
Variable overhead	2.80		9240
Avoidable fixed overhead			8894
Opportunity cost			2400
Outside Purchase cost		13.81		45573
Total cost	10.61	13.81	46307	45573
Difference in cost = 46307-45573 = 734
Decrease in production level = 734/(13.81-10.61)= 229
Indifferent production level = 3300+229 = 3529
3529 is correct answer