Question

1. X Company currently buys a part from a supplier for $13.70 per unit but is considering making the part itself next year. This year, they purchased 3,100 units of this part; next year, they think they will need 3,400 units. Estimated costs to make the part are:

		Per-Unit	Total
Direct materials		$2.35	$7,285
Direct labor		4.93	15,283
Variable overhead		4.10	12,710
Fixed overhead		5.40	16,740
Total		$16.78	$52,018

Of the estimated fixed overhead, $7,700 are common costs that would be allocated to the part; the rest would be additional fixed overhead costs. X Company currently rents unused factory space for $2,200; it will have to use this space to make the part. If X Company continues to buy the part instead of making it, it will save ( )

3 and 4. X Company currently makes a part and is considering buying it from a company has offered to supply it for $16.00 per unit. This year, per-unit production costs to produce 57,000 units were:

Direct materials	$5.80
Direct labor	4.30
Overhead	6.00
Total	$16.10

$228,000 of the total overhead costs were variable; $33,060 of the fixed overhead costs can be avoided if X Company buys the part. In addition, the resources that were used for production can be rented to another company for $70,000. Production next year is expected to increase to 61,700 units.

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

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4. X Company is uncertain about next year's production level. At what production level will the company be indifferent between making and buying the part?

Questions 5 and 6 refer to the following information

At the end of the year, a company offered to buy 4,920 units of a product from X Company for a special price of $12.00 each instead of the company's regular price of $19.00 each. The following information relates to the 61,200 units of the product that X Company made and sold to its regular customers during the year:

		Per-Unit	Total
Cost of goods sold		$7.61	$465,732
Period costs		2.30	140,760
Total		$9.91	$606,492

Fixed cost of goods sold for the year were $113,832, and fixed period costs were $70,380. Variable period costs include selling commissions equal to 2% of revenue.

5. Profit on the special order is

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6. Assume the following two changes for the special order: 1) variable cost of goods sold will decrease by $0.80 per unit, and 2) there will be no selling commissions. What will be the effect of these two changes on the special order profit?

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