Question

Exercise 23-4 Make or buy decision LO A1 Gilberto Company currently manufactures 60,000 units per year of one of its crucial parts. Variable costs are $160 per unit foxed 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. Gilberto is considering buying the part from a supplier for a quoted price of $280 per unit guaranteed for a three-year period Calculate the total incremental cost of making 60,000 and buying 60,000 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 60,000 units. (Round cost per unit answer to 2 decimal places.) Incremental Costs to Make Relevant pelevant fixed Amount per Unit costs Total relevant costs Total incremental cost to make Costs to Buy >

Answer 1

Date:_/ /__ Page no: _ Statement of Cost comparison - cost to make $ per unit 1.60 Cost to Buy & per unit Purchate cost $2.80 hriable cost fixed - Avoidable - ost ($60000/60000) 1.00 Cost per unit x number of units $ 2.60 60000 $156000 cost per unit x number of unib l Total cost $2.80 60000 $168000 Total cost should make the part due Decision :- Gilberto to lower cost - Nole: - Unavoidable fixed not a relevant in continue to occur cost are sunk cost decision making irrespective of the and as they decision