X Company is considering buying a part next year that they currently produce. A company...
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Accounting
X Company is considering buying a part next year that they currently produce. A company has offered to supply this part for $16.60 per unit. This year's total production costs for 80,000 units of this part were:
| Materials | $560,000 |
| Direct labor [all variable] | 456,000 |
| Variable overhead | 240,000 |
| Fixed overhead | 96,000 |
Unavoidable fixed overhead costs are $64,320. If X Company buys the part, there is no alternative use for the idle resources. Production next year is expected to increase to 83,050 units.
If X Company continues to make the part instead of buying it, it will save how much?
Assume that X Company has an opportunity to negotiate the purchase price with the supplier. At what purchase price would X Company be indifferent between making and buying?
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