Exercise 23-5 Make or buy LO A1

Gelb Company currently manufactures 40,000 units per year of a key component for its manufacturing process. Variable costs are $6.25 per unit, fixed costs related to making this component are $75,000 per year, and allocated fixed costs are $77,500 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. Calculate the total incremental cost of making 40,000 and buying 40,000 units. Should it continue to manufacture the component, or should it buy this component from the outside supplier? (Round "purchase price per unit" answer to 2 decimal places.)

Costs to Make Costs to Buy Outside Supplier Calculate the total incremental cost of making 40,000 units. (Round "variable cost per unit" answer to 2 decimal places.) Incremental Costs to Make Relevant Amount per Relevant Fixed Costs Total Relevant Costs Unit Total incremental cost to make Costs to Make Costs to Buy Outside Supplier Calculate the total incremental cost of making 40,000 units. (Round "variable cost per unit" answer to 2 decimal places.) Incremental Costs to Buy Relevant Relevant Amount per Fixed Costs Unit Total Relevant Costs Total incremental cost to buy Costs to Make Costs to Buy Outside Supplier Should it continue to manufacture the component, or should it buy this component from the outside supplier? Should Gelb make the part or purchase it from the outside supplier