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6 December, 20:53

Gilberto Company currently manufactures 50,000 units per year of one of its crucial parts. 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 and buying 50,000 units. Should the company continue to manufacture the part, or should it buy the part from the outside supplier

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  1. 7 December, 00:10
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    Net incremental cost of buying (10,000). /

    Gilberto Company should produced the parts internally. Doing so would saving its $10,000 per year

    Explanation:

    The relevant cash flow from the accepting the offer of the outside suppliers include

    Extra variable cost of buying

    Savings in direct fixed manufacturing overhead

    Unit variable cost of making: = $2

    $

    Variable cost of external purchase ($3.2 * 50,000) 160,000

    Variable cost of making ($2 * 50,000) (100,000)

    Extra variable cost of buying (60,000)

    Savings in direct fixed cost 50,000

    Net incremental cost of buying (10,000)
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