Question

# Gilberto Company currently manufactures 60,000 units per year of one of its crucial parts. Variable costs...

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.)

 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 60,000 units. (Round cost per unit answer to 2 decimal places.)

 Incremental Costs to Buy Relevant Amount per Unit Relevant fixed costs Total relevant costs Total incremental cost to buy

Should the company continue to manufacture the part, or should it buy the part from the outside supplier?

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

 Incremental Costs to Make Relevant Amount per Unit Relevant Fixed Costs Total Relevant Costs Variable cost per unit 1.60 96000 Fixed manufacturing costs 60000 60000 Total incremental cost to make 156000 Incremental Costs to Buy Relevant Amount per Unit Relevant Fixed Costs Total Relevant Costs Purchase price per unit 2.80 168000 Total incremental cost to buy 168000 3 Make the part, as cost of making is less

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