Question

Gilberto Company currently manufactures 80,000 units per year of one of its crucial parts. Variable costs are $1.50 per unit, fixed costs related to making this part are $80,000 per year, and allocated fixed costs are $40,000 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 $3.30 per unit guaranteed for a three-year period. Calculate the total incremental cost of making 80,000 and buying 80,000 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. Costs to Make Costs to Buy Outside Supplier Calculate the total incremental cost of making 80,000 units. (Round cost per unit answer to 2 decimal places.) Incremental Costs to Make Relevant Amount per Relevant fixed Unit costs Total relevant costs Total incremental cost to make < Costs to Make Costs to Buy >

Answer 1

Answer-

Incremental cost to making 80000 units
Particulars	Relevant amount per unit	Relevant fixed costs	Total Relevant costs
			$
Variable cost per unit	$1.50		$1.50*80000 units=120000
Fixed manufacturing costs		$80000-$40000=$35000	40000
Total incremental cost to make			$160000

Answer-

Incremental cost to buy 80000 units
Particulars	Relevant amount per unit	Relevant fixed costs	Total Relevant costs
Purchase price per unit	$3.30		$3.30*80000 units=264000
Total incremental cost to buy			$264000

Answer-The company should continue to manufacture the part due to least cost in making such part instead of buying from outside supplier.