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X Company is considering buying a part next year that they currently make. A company has...

Question

X Company is considering buying a part next year that they currently make. A company has...

X Company is considering buying a part next year that they currently make. A company has offered to supply this part for $14.74 per unit. This year's total production costs for 55,000 units were:

Materials $335,500
Direct labor [all variable] 231,000
Total overhead    192,500
Total production costs $759,000


Of the total overhead costs, $55,000 were fixed, and $42,350 of these fixed overhead costs were unavoidable. If X Company buys the part, the resources that were used for production can be rented out for $75,000. Production next year is expected to increase to 59,000 units. If X Company continues to make the part instead of buying it, it will save _____?

Answers

Differential analysis :

Make Buy
Direct material 359900
Direct labour 247800
Variable overhead 147500
Fixed overhead 12650
Opportunity cost 75000
Purchase cost 869660
Total 842850 869660

If X Company continues to make the part instead of buying it, it will save 26810


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