h.23 Homework xKeos 25-12Decision To Ac xhul. ? | ezto.mheducation.com/hm.tpx al
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h.23 Homework xKeos 25-12Decision To Ac xhul. ? | ezto.mheducation.com/hm.tpx alue 0.90 points Exercise 23-5 Make or buy LO A1 Gelb Company currently manufactures 52.500 units per year of a key component for its manufacturing year, and allocated fixed costs are $76,500 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 53 70 per unit Calculate the total incremental cost of making 52 500 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 Total incremerital cost to make Calcü ate the sotal increnenta 2 decimal places.) OType here to searchExplanation / Answer
a) Incremental cost to make 52,500 units
Variable cost to make 52,500 units (2.95*52,500) = $ 154,875
Fixed cost relevant to make 52,500 components = $ 69,000
Allocated fixed cost being unavoidable = Nil
Total cost to make 52,500 units = $ 223,875
b) Incremental cost to buy 52,500 units
Variable cost to buy 52,500 units (3.70*52,500) = $ 194,250
Fixed cost relevant to make 52,500 components = $ Nil (Refer Note)
Total cost to buy 52,500 units = $ 194,250
Note: Since these cost are relevant in making the units, hence the same will not be incurred if we purchase the units from outside market
c) The product should be purchased from the outside market
Total Incremental cost to make the units a) = $ 223,875
Total Incremental cost to buy the units b) = $ 194,250
Incremental benefit to buy the unit (b-a) = $ 29,625
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