Question

X Company currently makes a part and is considering buying it next year from a company that has offered to supply it for $15.19 per unit. This year, total costs to produce 66,000 units were:

Direct materials			$376,200
Direct labor			297,000
Variable overhead			283,800
Fixed overhead			323,400

If X Company buys the part, $58,212 of the fixed overhead is avoidable. The resources that will become idle if they choose to buy the part can be used to increase production of another product, resulting in additional total contribution margin of $15,000.

The marketing manager estimates that demand next year will increase to 70,350 units. If X Company buys the part instead of making it, it will save

Answer 1

Total cost per unit for 66,000 units
Direct materials    =   $376,200
Direct labor   =           $297,000
Variable overhead = $283,800
Total Cost           =      $957,000
Cost per unit =   $957,000/66,000
	=     $ 14.50
Do not consider Fixed overhead cost here.
Because it does not changes with change in units.
Comparison Between Make or Buy option.
Demand of units will be estimated next year is 70,350 units.
Make	Amount	Buy	Amount
Total variable cost		Total variable cost
($14.50 * 70350 units)	$1,020,075	($15.19 * 70350 units)	$1,068,616.50
Fixed overhead cost	$323,400	Fixed overhead cost	$265,188
Total Manufacturing cost	$1,343,475	($323,400-$58212)
		Contrybution margin	($15,000)
		Total Manufacturing cost	$1,318,804.5
If X Company buys the part instead of making it, it will save ($1,343,475 - $1,318,804.50) = $26,670.50 rounded off to $26,671.