Gilberto Company currently manufactures 60,000 units per year of
one of its crucial parts. Variable costs are $1.60 per unit, fixed
costs related to making this part are $60,000 per year, and
allocated fixed costs are $30,000 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 $2.80 per unit guaranteed for a three-year
period.
Calculate the total incremental cost of making 60,000 and buying
60,000 units. Should the company continue to manufacture the part,
or should it buy the part from the outside supplier?
Calculate the total incremental cost of making 60,000 units.
(Round cost per unit answer to 2 decimal places.)
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Incremental Costs to Make |
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Relevant Amount per Unit |
Relevant fixed costs |
Total relevant costs |
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| Total incremental
cost to make |
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Calculate the total incremental cost of buying 60,000 units.
(Round cost per unit answer to 2 decimal places.)
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Incremental Costs to Buy |
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Relevant Amount per Unit |
Relevant fixed costs |
Total relevant costs |
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| Total incremental
cost to buy |
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Should the company continue to manufacture the part, or should
it buy the part from the outside supplier?
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| Should Gilberto make the part or purchase
it from the outside supplier? |
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