Gelb Company currently manufactures 52,000 units per year of a key component for its manufacturing process. Variable costs are $5.15 per unit, fixed costs related to making this component are $77,000 per year, and allocated fixed costs are $65,500 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.
Required:
1. Calculate the total incremental cost of making 52,000 and buying 52,000 units. Should it continue to manufacture the component, or should it buy this component from the outside supplier?
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