Question

Gelb Company currently manufactures 47,000 units per year of a key component for its manufacturing process. Variable costs are $6.25 per unit, fixed costs related to making this component are $71,000 per year, and allocated fixed costs are $65,500 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 $3.90 per unit.

Calculate the total incremental cost of making 47,000 units and buying 47,000 units. Should it continue to manufacture the component, or should it buy this component from the outside supplier?

Calculate the total incremental cost of making 47,000 units. (Round "variable cost per unit" answers to 2 decimal places.)

Incremental Costs to Make
	Relevant Amount per Unit	Relevant Fixed Costs	Total Relevant Costs
Total incremental cost to make

Calculate the total incremental cost of buying 47,000 units. (Round "purchase price per unit" answers to 2 decimal places.)

Incremental Costs to Buy
	Relevant Amount per Unit	Relevant Fixed Costs	Total Relevant Costs
Total incremental cost to buy

Answer 1