Question

X Company currently buys a part from a supplier for $14.30 per unit but is considering making the part itself next year. This year, they purchased 3,000 units of this part; next year, they will need 3,500 units. Estimated costs to make the part next year are:'

Answer 1

Answer:

If the part is purchased externally it will cost

$50,050  [$14.3 * 3,500]

If the part is made internally then the costs to be added up is:

Direct material per unit

Direct Labor per unit

Variable overheads per unit

and Fixed overhead per unit

the total of these costs per unit will be multiplied by the units required to be made i.e 3,500.

X Company should choose the option with the lowest total cost for 3,500 units

Explanation:

If the part is purchased externally it will cost

$50,050  [$14.3 * 3,500]

If the part is made internally then the costs to be added up is:

Direct material per unit

Direct Labor per unit

Variable overheads per unit

and Fixed overhead per unit

the total of these costs per unit will be multiplied by the units required to be made i.e 3,500.

X Company should choose the option with the lowest total cost for 3,500 units