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Question
1. Gilberto Company currently manufactures 50,000 units per year of one of its crucial parts. Variable costs are $1.70 per unit, fixed costs related to making this part are $50,000 per year, and allocated fixed costs are $45,000 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 $3.10 per unit guaranteed for a three-year period.
What is 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?
2. Should the company continue to manufacture the part, or should it buy the part from the outside supplier?
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