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:
| Per-Unit | Total | ||
| Direct materials | $3.45 | $10,695 | |
| Direct labor | 4.65 | 14,415 | |
| Variable overhead | 3.00 | 9,300 | |
| Fixed overhead | 4.50 | 13,950 | |
| Total | $15.60 | $48,360 | |
A company has offered to supply this part to X Company for $14.40
per unit. If X Company accepts the offer, it will still incur fixed
costs of $6,556, but it will be able to lease the resources that
will become available from not making the part for $2,000. At what
production level would X Company be indifferent between making and
buying the part next year?
| A: 684 | B: 910 | C: 1,210 | D: 1,609 | E: 2,140 | F: 2,847 |
Let the number of units sold be S.
Total cost to make = (S X $11.10) + $13,950
Total cost to buy = (S X $14.40) + $6,556 - $2,000
(S X $11.10) + $13,950 =
(S X $14.40) + $6,556 - $2,000
$13,950 - $4,556 = $14.40S - $11.10S
$9,394 = $3.30S
S = 2,847 units
2,847
Option F
X Company is considering buying a part next year that they currently make. This year's production...