Question

X Company currently makes a part and is considering buying it from a company that has offered to supply it for $19.36 per unit. This year, per-unit production costs to produce 17,000 units were:

Direct materials $8.30

Direct labor 6.00

Overhead 6.20

Total $20.50

$47,600 of the total overhead costs were fixed. $27,132 of the fixed overhead costs are avoidable if X Company buys the part. If the company buys the part, the resources that are used to make it cannot be used for anything else. Production next year is expected to be 17,650 units.

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

A: $1,110 B: $1,387 C: $1,734 D: $2,167 E: $2,709 F:

Answer 1

Total Variable overhead cost = Total Overhead cost - total fixed overhead cost
=($6.20*17000 units) -$47600
=$57800
Variable overhead cost per unit = $57800/17000
=$3.4 per unit
Cost that can be avoided If part bought from outside supplier
	Per unit	Total (17650 units)
Direct Material	8.3	$                     1,46,495
Direct Labor	6	$                     1,05,900
Variable overhead cost	3.4	$                         60,010
Fixed overhead cost		$                         27,132
Total Avoidable cost		$                     3,39,537
Cost of buying outside =$19.36*17650		$                     3,41,704
Net Benefit (saving)		$                           2,167
($341704-339537)
Correct Option : D.2167
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