Gilberto Company currently manufactures 50,000 units per year of one of its cruc

Question

Gilberto Company currently manufactures 50,000 units per year of one of its crucial parts. Variable costs are $1.70 per unit, fixed costs related to making this part are $50,000 per year, and allocated fixed costs are $45,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Gilberto is considering buying the part from a supplier for a quoted price of $3.10 per unit guaranteed for a three-year period. Calculate the total incremental cost of making 50,000 and buying 50,000 units. Should the company continue to manufacture the part, or should it buy the part from the outside supplier? Complete this question by entering your answers in the tabs below. Outside Costs to Make Costs to Buy Supplier Calculate the total incremental cost of making 50,000 units. (Round cost per unit answer to 2 decimal places.) Incremental Costs to Make RelevantRelevant fixed Amount per Unit Total relevant costs costs Total incremental cost to make

Explanation / Answer

Incremental costs to make Relevant Relevant total amount fixed costs Relevant per unit costs Variable cost per unit 1.7 85000 fixed manufacturing costs 50,000 50,000 total incremental cost to make 135000 Incremental costs to Buy Relevant Relevant total amount fixed costs Relevant per unit costs Variable cost per unit 3.1 155000 fixed manufacturing costs total incremental cost to Buy 155000 gilbeto should Make

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