Gilberto Company currently manufactures one of its crucial parts 70.000 units pe
ID: 2471097 • Letter: G
Question
Gilberto Company currently manufactures one of its crucial parts 70.000 units per year of variable costs are $3.70 per unit fixed oosts related to making this re $70.000 per year, and allocated fixed costs are $35.000 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 $2.90 per unit guaranteed for a three-year period. Calculate the total incremental cost of making 70.000 units. Calculate the total incremental cost of buying 70,000 units.Explanation / Answer
Fixed Cost per Unit= $35,000/70,000=$0.50
Unavoidable fixed cost is irrelevant for decision making
Incremental Costs to Make
Relavant Amount per Unit
Relavant Fixed Cost
Total Relavant Cost
Cost Per Unit
$ 3.70
$ 0.50
$ 4.20
No of Units
70,000
70,000
Total Incremental Cost to make
$ 259,000
$ 35,000
$ 294,000
Incremental Costs to buy
Relavant Amount per Unit
Relavant Fixed Cost
Total Relavant Cost
Cost Per Unit
$ 2.90
$ 2.90
No of Units
70,000
70,000
Total Incremental Cost to buy
$ 203,000
$ -
$ 203,000
Incremental Costs to Make
Relavant Amount per Unit
Relavant Fixed Cost
Total Relavant Cost
Cost Per Unit
$ 3.70
$ 0.50
$ 4.20
No of Units
70,000
70,000
Total Incremental Cost to make
$ 259,000
$ 35,000
$ 294,000
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