Define production level of the company

Reference no: EM132088153

Question: X Company is considering buying a part next year that they currently make. This year's production costs for 3,100 units were:

	Total	Per-Unit
Direct materials	$11,842	$3.82
Direct labor	12,121	3.91
Variable overhead	13,330	4.30
Fixed overhead	12,090	3.90
Total	$49,383	$15.93

A company has offered to supply this part for $14.44 per unit. If X Company buys the part, $6,650 of the fixed overhead can be avoided. Also if X Company buys the part, it can use the freed-up resources to increase production of another product, resulting in additional contribution margin of $2,200. Production next year is expected to be 3,400 units.

2. If X Company buys the part instead of making it, it will save

3. X Company is uncertain what production will be next year. What production level would make X Company indifferent between making and buying the part?

Reference no: EM132088153

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