Question

Exercise 23-4 Make or buy decision LO A1

Gilberto Company currently manufactures 60,000 units per year of one of its crucial parts. Variable costs are $1.80 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 $3.00 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?

Answer 1