Question

X Company currently makes a part and is considering buying it next year from a company that has offered to supply it for $17.15 per unit. This year, total costs to produce 58,000 units were:

Direct materials			$400,200
Direct labor			232,000
Variable overhead			261,000
Fixed overhead			87,000

If X Company buys the part, it can avoid $28,710 of the fixed overhead. The resources that will become idle if they choose to buy the part can be used to increase production of another product, resulting in additional total contribution margin of $70,000.

The marketing manager is uncertain what demand will be next year. What level of demand will make the company indifferent between making the part and buying it?

Answer 1

The answer has been presented in the supporting sheets. The answer has been solved with detailed explanation and format. For detailed answers refer to the supporting sheets.

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