Santos Company currently manufactures one of its crucial parts at a cost of $4.8

Question

Santos Company currently manufactures one of its crucial parts at a cost of $4.85 per unit. This cost is based on a normal production rate of 60,000 units per year. Variable costs are $3.10 per unit, fixed costs related to making this part are $60,000 per year, and allocated fixed costs are $45,000 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 $3.50 per unit guaranteed for a three-year period. Calculate the total incremental cost of making 60,000 units.Calculate the total incremental cost of buying 60,000 units.

Explanation / Answer

Hi, If you like my answer rate me first...that way only I can earn points. Thanks the total incremental cost of making 60,000 units = $3.10 * 60000 + $60000 + $45000 = $291000 the total incremental cost of buying 60,000 units.= $3.50 *60000 + $45000 = $255000 (Allocated fixed costs are unavoidable whether the company makes or buys the part)

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