What production level would make x company indifferent

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Reference no: EM132088003

Question: X Company is considering buying a part next year that they currently make. This year's production costs for 3,500 units were:

	Total	Per-Unit
Direct materials	$13,825	$3.95
Direct labor	11,060	3.16
Variable overhead	11,900	3.40
Fixed overhead	11,900	3.40
Total	$48,685	$13.91

A company has offered to supply this part for $12.99 per unit. If X Company buys the part, $6,783 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 $2,100. Production next year is expected to be 4,000 units.

2. If X Company continues to make the part instead of buying 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: EM132088003

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