Question

Gilberto Company currently manufactures 88,000 units per year of one of its crucial parts. Variable costs are $3.10 per unit, fixed costs related to making this part are $98,000 per year, and allocated fixed costs are $85,000 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 $4.30 per unit guaranteed for a three-year period. Calculate the total incremental cost of making 88,000 and buying 88,000 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. Outside Costs to Make Costs to Buy Supplier Calculate the total incremental cost of making 88,000 units. (Round cost per unit answers to 2 decimal places.) Incremental Costs to Make Relevant Amount per Relevant Fixed Costs Total Relevant Costs Unit

Answer 1

Cost to make 88,000 units Incremental cost to make Relevant Amount per unit Relevant Fixed cost Total Relevant cost Cost 3.1 98000 Total cost to make 88,000 units 272800 98000 370800 Incremental cost to buy Relevant Amount per unit Relevant Fixed cost Total Relevant cost Cost 4.3 Total cost to make 88,000 units 378400 378400 Since the company incurs more cost in buying, the company should make the product