Question

X Company is considering buying a part next year that they currently make. This year's production costs for 3,100 units were as follows: Direct materials Direct labor Variable overhead Fixed overhead Total Per-Unit $2.48 3.09 4.40 3.00 $12.97 Total $7,688 9,579 13,640 9,300 $40,207 A company has offered to supply this part to X Company for $12.38 per unit. If X Company accepts the offer, it will still incur fixed costs of $4,743, but it will be able to lease the resources that will become available from not making the part for $2,400. Next year's expected production level is 3,500 units. 11. If X Company makes the part next year instead of buying it, it will save A: $1,478 D: $2,887 E: $3,608 F: $4,510 B: $1,848 |C: $2,309 Tries 0/99 Submit Answer 12. At what production level would X Company be indifferent between making and buying the part next year? OA: 2,001 B: 2,261 C: 2,555 D: 2,887 E: 3,262 F: 3,686

Answer 1

Q11.
Differential analyss
			Make	Buy	effect on Income
Material cost		8680	0	8680
Labour cost		10815	0	10815
variable overheads		15400	0	15400
Fixed overheads		9300	4743	4,557
Opportunity cost -Lease rental	2400	0	2400
Cost of purchase		0	43330	-43330
Total			46595	48073	-1478
Answer is A. $1478
Q12.
Fixed cost avoidable		4557
Opportunity cost		2,400
Total fixed cost		6,957
Divide: Difference in VC per unt
VC of buying	12.38
VC of making	9.97	2.41
(2.48+3.09+4.40)
Indifference production level	2,887
Answer is D. 2887