Question value 3.33 points Gilberto Company currently manufactures one of its cr

Question

Question value 3.33 points Gilberto Company currently manufactures one of its crucial parts at a cost of $3.80 per unit. This cost is based on a normal production rate of 50,000 units per year. Variable costs are $2.00 per unit, fixed costs related to making this part are $50,000 per year, and allocated fixed costs are $40,000 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 20 per unit guaranteed for a three-year period Calculate the total incremental cost of making 50,000 units. Incremental costs to make Relevant Relevant fixed Total relevant Amount per Unit costs arable cost per unt xed manufacturing costs 100,000 50,000 S 50,000 Total incremental cost to make 150,000 Calculate the total incremental cost of buying 50,000 units Incremental costs to buy Relevant Relevant fixed Amount per Unitcosts Total relevant costs Purchase price per unit 160,000 Total incremental cost to buy 160,000 Should the company continue to manufacture the part, or should it buy the part from the outside supplier?

Explanation / Answer

Incremental cost to make Relevant Amount per unit Relevant fixed costs Total relevant costs Variable cost per unit 2 100000 Fixed manufacturing costs 50000 50000 Total incremental cost to make 150000 Incremental cost to buy Relevant amount per unit Relevant fixed costs Total relevant costs Purchase price per unit 3.20 160,000 Total incremental cost to buy 160,000 * The company should continue to manufacture the parts because the cost of manufaturing is less than purchasing.

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