Gelb Company currently manufactures 40,000 units per year of a key component for its manufacturing process. Variable costs are $1.95 per unit, fixed costs related to making this component are $65,000 per year, and allocated fixed costs are $58, 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 $3.50 per unit.
a. Calculate the total incremental cost of making 40,000 units. (Round "variable cost per unit" answer to 2 decimal places.)
b. Calculate the total incremental cost of buying 40,000 units. (Round "Purchase price per unit" answer to 2 decimal places.)
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