Exercise 23-5 Make or buy LO A1

Gelb Company currently manufactures 49,000 units per year of a key component for its manufacturing process. Variable costs are $7.35 per unit, fixed costs related to making this component are $73,000 per year, and allocated fixed costs are $59,500 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 $3.90 per unit. Calculate the total incremental cost of making 49,000 and buying 49,000 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 49,000 units. (Round "variable cost per unit" answer to 2 decimal places.)

• Costs to Make
• Costs to Buy
• Outside Supplier

Calculate the total incremental cost of making 49,000 units. (Round "variable cost per unit" answer to 2 decimal places.)

Incremental Costs to Make
	Relevant Amount per Unit	Relevant Fixed Costs	Total Relevant Costs
Variable cost per unit
Fixed manufacturing costs
Total incremental cost to make

Incremental Costs to Buy
	Relevant Amount per Unit	Relevant Fixed Costs	Total Relevant Costs
Purchase price per unit
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?