Discuss the freed-up resources to increase production

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X Company is considering buying a part next year that they currently make. This year's production costs for 3,200 units were:

  Total   Per-Unit
Materials $8,512 $2.66   
Direct labor [all variable] 15,936 4.98   
Variable overhead 10,880 3.40   
Fixed overhead 9,920 3.10   
Totals $45,248 $14.14   

A company has offered to supply this part for $13.38 per unit. If X Company buys the part, $4,960 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 $2,700. Production next year is also expected to be 3,200 units.

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

4. X Company is uncertain what production will be next year. At what production level would it be indifferent between making and buying the part?

Reference no: EM131786183

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