What purchase price would make company indifferent

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Reference no: EM132088119

Question: X Company is considering buying a part next year that they currently make. A company has offered to supply this part for $16.32 per unit. This year's production costs per unit for 52,000 units were:

Direct materials	$7.00
Direct labor	4.90
Total overhead	4.50
Total	$16.40

Of the total overhead costs, $83,200 were fixed, and $56,576 of these fixed overhead costs are unavoidable. If X Company buys the part, the resources that were used for production can be rented to another company for $70,000. Production next year is expected to increase to 55,950 units.

1) If X Company buys the part instead of making it, it will save ____?

2) Assume that X Company has an opportunity to negotiate the purchase price with the supplier. What purchase price would make X Company indifferent between making and buying?

Reference no: EM132088119

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