ABC Company is considering buying a part next year that it currently makes. A company has offered to supply this part for $18.62 per unit. This year’s total production costs for 57,000 units were as under: Materials $399,000 Direct labor $307,800 Total overhead $336,300 $250,800 of ABC Company’s total overhead costs were variable; $20,520 of ABC Company’s fixed overhead costs can be avoided if it buys the part. If ABC Company buys the part, there are no alternative uses of the resources that were used for its production. Production next year is expected to increase to 60,850 units. If ABC Company continues to make the part instead of buying it, how much will it save? ABC Company has an opportunity to negotiate the purchase price with the supplier. What purchase price would make ABC Company indifferent between making and buying Document Preview:

ABC Company is considering buying a part next year that it currently makes. A company has offered to supply this part for $18.62 per unit. This year’s total production costs for 57,000 units were as under: Materials $399,000 Direct labor $307,800 Total overhead $336,300 $250,800 of ABC Company’s total overhead costs were variable; $20,520 of ABC Company’s fixed overhead costs can be avoided if it buys the part. If ABC Company buys the part, there are no alternative uses of the resources that were used for its production. Production next year is expected to increase to 60,850 units. If ABC Company continues to make the part instead of buying it, how much will it save? ABC Company has an opportunity to negotiate the purchase price with the supplier. What purchase price would make ABC Company indifferent between making and buying?

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