X Company is considering buying a part next year that they currently make. A company has offered to supply this part for $11.23 per unit. X Company would have to inspect each part at a cost of $0.49 per unit. This year's production costs for 8,100 units of this part were:
|
Total |
Per-Unit |
| Materials |
$26,163 |
$3.23 |
| Direct labor |
29,484 |
3.64 |
| Variable overhead |
24,867 |
3.07 |
| Fixed overhead |
26,163 |
3.23 |
If X Company buys the part, $11,773 of the fixed overhead is avoidable; the rest is common and cannot be avoided. In addition, if X Company buys the part, it can rent out the facilities that it currently uses to make the part and receive $12,200. Estimated production next year is expected to be the same as last year.
1) If X Company buys the part, it will save?
2) X Company is concerned that next year's sales may be different than this year's sales. At what level of demand will X Company be indifferent between making and buying?