Santos Company currently manufactures one of its crucial parts at a cost of $3.1

Question

Santos Company currently manufactures one of its crucial parts at a cost of $3.10 per unit. This cost is based on a normal production rate of 60,000 units per year. Variable costs are $1.60 per unit, fixed costs related to making this part are $60,000 per year, and allocated fixed costs are $30,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Santos is considering buying the part from a supplier for a quoted price of $2.80 per unit guaranteed for a three-year period. Calculate the total incremental cost of making 60,000 units. Total incremental cost $ Calculate the total incremental cost of buying 60,000 units.

Explanation / Answer

Hi, if you like my answer please rate me life-saver first. total incremental cost of buying 60,000 units = $2.80*60000 = $168000 the total incremental cost of making 60,000 units = cost of buying + variable cost + fixed cost =$168000 + $1.60 * 60000 + $60000 = $324000.

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