Question

Gelb Company currently manufactures 58,000 units per year of a key component for its manufacturing process. Variable costs are $7.35 per unit, fixed costs related to making this component are $69,000 per year, and allocated fxed costs are $77,500 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 $3.70 per unit Calculate the total incremental cost of making 58,000 and buying 58,000 units. Should It continue to manufacture the component, or should it buy this component from the outside supplier? (Round "purchase price per unit" answer to 2 decimal places.) Complete this question by entering your answers in the tabebulow. Costs to Make Costs to Buy Outside Supplier Calculate the total incremental cost of making 58,000 units. (Round variable cost per unit answer to 2 decimal places.) Fred Costs Tots Relevant Costs Variable cost per un Fundarnachting costs Total cost to make Costs to > < Prev 14/15 Next > SAMSUNG

Answer 1

Incremental costs to make Relevant Relevant Amount fixed per unit coits Variable cost per unit $ 7.35 fixed Manufacturing costs Total Relevant costs |$426,300 $ 69,000 $ 69,000 Total incremental cost to make $495,300 Incremental costs to Buy Relevant Relevant Amount to fixed Buy costs Purchase Price per Unit $3.70 Total Relevant costs $ 214,600 Total incremental cost to buy $214,600 Should Gelb make the part or purchase it from Buy the outside supplier? calculation" Total variable cost = $7.35 per unit x 58,000 units $426,300 Purchase Price : $3.70 per unit x 58,000 units a $214,600 Incremental costs to make the part are ($495, 300- $214,600) $280,700 more per year than buying it. this implies that company should buy the part from the outside supplier.