Gelb Company currently manufactures 49,000 units per year of a key component for

Question

Gelb Company currently manufactures 49,000 units per year of a key component for its manufacturing process. Variable costs are $6.25 per unit, fixed costs related to making this component are $85,000 per year, and allocated fixed costs are $75,500 per year. The allocated fixed costs are unavoidable whether the company makes or buys this component. The company is considering buying this component from a supplier for $3.70 per unit.

Calculate the total incremental cost of making 49,000 and buying 49,000 units. Should it continue to manufacture the component, or should it buy this component from the outside supplier? (Round "purchase price per unit" answer to 2 decimal places.)

Outside to Make Costs to Buy Supplier Costs Calculate the total incremental cost of making 49,000 units. (Round "variable cost per unit" answer to 2 decimal places.) Incremental Costs to Make Relevant Relevant Total Relevant Amount per Fixed Costs Costs Unit Variable cost per unit Fixed manufacturing costs 85,00085,000 Total incremental cost to make $85,000

Explanation / Answer

costs to make Relevant Relevant total amount fixed relevant costs per unit costs variable cost per unit 6.25 306250 fixed manufacturing costs 85,000 85,000 total incremental cost to make 391250 cost of buy Relevant Relevant total amount fixed relevant costs per unit costs variable cost per unit 3.7 181300 total incremental cost to buy 181300

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