Gilberto Company currently manufactures 65,000 units per year of one of its cruc
ID: 2431615 • Letter: G
Question
Gilberto Company currently manufactures 65,000 units per year of one of its crucial parts. Variable costs are $1.95 per unit, fixed costs related to making this part are $75,000 per year, and allocated fixed costs are $62,000 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 $325 per unit guaranteed for a three-year period Cakculate the total incremental cost of making and buying 65,000 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. Inc Costs to Make Inc Costs to Buy Calculate the total incremental cost of making 65,000 units. (Round cost per unit answer to 2 decimal places.) Costs to Make Relevant Amount Relevant Fixed Total Relevant
Explanation / Answer
Answer:
1
Calculate the total incremental cost of making 65,000 units
Incremental Costs to Make
Relevant Amount per Unit
Relevant Fixed Costs
Total Relevant Costs
Variable cost per unit(1.95*65000=126750)
$1.95
$126,750
Fixed manufacturing costs
$75,000
$75,000
Total incremental cost to make
201750
_____________________________________________________________
2
Calculate the total incremental cost of buying 65,000 units
Incremental Costs to Buy
Relevant Amount per Unit
Relevant Fixed Costs
Total Relevant Costs
Purchase price per unit
$3.25
$211,250
(3.25*65000)
Total incremental cost to buy
211250
company should continue to manufacture the part because making cost is lower then buying cost
Incremental Costs to Make
Relevant Amount per Unit
Relevant Fixed Costs
Total Relevant Costs
Variable cost per unit(1.95*65000=126750)
$1.95
$126,750
Fixed manufacturing costs
$75,000
$75,000
Total incremental cost to make
201750
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