Question

Gilberto Company currently manufactures 89.000 units per year of one of its crucial parts. Variable costs are $3.15 per unit, fixed costs related to making this part are $99.000 per year, and allocated fixed costs are $86,000 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 $4.35 per unit guaranteed for a three-year period Calculate the total incremental cost of making 89.000 and buying 89,000 units. Should the company continue to manufacture the part. or should it buy the part from the outside supplier? ook Complete this question by entering your answers in the tabs below. nt Costs to Make Costs to buy Outside Supplier Calculate the total incremental cost of making 89,000 units. (Round cost per unit answers to 2 decimal places.) Incremental Costs to Make Relevant Amount per Relevant Fixed Unit Costs Total Relevant Costs Variable cost per unit Fored manufacturing costs Total incremental cost to make Costs to Buy >

Answer 1

1)

Incremental Costs to Make
	Relevant amount per unit	Relevant fixed costs	Total relevant costs
Variable cost per unit	$3.15	-	($3.15*89000)= $280350
Fixed manufacturing costs	-	$99000	99000
Total incremental cost to make			$379350

2)

Incremental Costs to Buy
	Relevant amount per unit	Relevant fixed costs	Total relevant costs
Purchase price per unit	$4.35	-	($4.35*89000)= $387150
Total incremental cost to buy			$387150

3)

Should Gilberto make the part or purchase it from the outside supplier?

Make

Gilberto should make the part as the incremental cost of making the product is less than buying the product.