Question

Gilberto Company currently manufactures 84,000 units per year of one of its crucial parts. Variable costs are $2.90 per unit, fixed costs related to making this part are $94,000 per year, and allocated fixed costs are $81,000 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 $4.10 per unit guaranteed for a three-year period.

Calculate the total incremental cost of making 84,000 and buying 84,000 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 84,000 units. (Round cost per unit answers to 2 de Incremental Costs to Make Relevant Amount per Relevant Fixed Unit Total Relevant Costs Costs Total incremental cost to make Costs to Buy >

Answer 1

Incremental Costs to Make Relevant Relevant Total relevant costs Amount perr fixed casts unit Variable cost per unit $ 2.90 4243,600 fixed manufacturing casts $ 94,000 $ 94,000 Total incremental cost to make $337,600 Incnemental cast to Buy Relevant fixed costs Relevant To tal relevant casts Amount per unit $ 344,400 $ 4.10 Purchase price per unit * 344,400 cost to buy Total in crem ental Calculation: Variable cost ( 2.96 per unit x 84,00o units) = $ 243, 600 Purchase price ( $ 4.10 per unit X 84,000 units) = $344,400 Should the company continue to manufa cture the part, or should it buy the pant from the outside supplier? Make