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Question -
Gelb Company currently manufactures 45.500 units per year of a key component for its manufacturing process. Variable costs are $2.95 per unit, fixed costs related to making this component are $73.000 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 $3.70 per unit.
Calculate the total incremental cost of making 45,500 units.
Calculate the total incremental cost of buying 45.500 units.
Should it continue to manufacture the component or should it buy this component from the outside supplier?
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