Question

Gelb Company currently manufactures 40,000 units per year of a key component for its manufacturing process. Variable costs are $6.25 per unit, fixed costs related to making this component are $77,000 per year, and allocated fixed costs are $65,500 per year. The allocated fixed costs are unavoidable whether the company makes or buys this component. The company is considering buying this component from a supplier for $3.50 per unit. Calculate the total incremental cost of making and buying 40,000 units. Should it continue to manufacture the component, or should it buy this component from the outside supplier? Complete this question by entering your answers in the tabs below. Inc Costs to Make Inc Costs to Buy Calculate the total incremental cost of buying 40,000 units. Should it continue to manufacture the component, or should it buy this component from the outside supplier? (Round cost per unit answer to 2 decimal places.) Incremental Costs to Buy Relevant Amount Relevant Fixed per Unit Costs Total Relevant Total incremental cost to buy The component should manufacture or buy from the outside supplier. I

Answer 1

Particulars Incremental cost to make Relevant Amdent Relevant - per unit Fixed Cast. Total Relevant Cost Variable cost 6.25 250,000 140200X6.25) $ 77000 Fixed Cost zelated to making $ 77000 Total incremental Cost to make $327000 notes Allo Cated fixed cost are scenk cost hence it is not relevant Cast Incremental cost t Buy Relevant Ant Relevant Total selerant Particulars per unit Fixed Carl laut Purchased from outside (4000 x 350) supplier $350 $ 140,000 Fixed cost related t Buying Total incaemental cost to play $ 140,00 "Thank you

Therefore the company should BUY

Thank you