Gilberto Company currently manufactures one of its crucial parts at a cost of $4.85 per unit. This cost is based on a normal production rate of 60,000 units per year. Variable costs are $3.10 per unit, fixed costs related to making this part are $60,000 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 $3.50 per unit guaranteed for a three-year period.

Calculate the total incremental cost of making 60,000 units.

Incramental Cost to Make

Relevant Amnt. per unit Relevant Fixed Costs Total Relevant Costs

Variable cost per unit __________ ____________ ____________

Allocated Fixed Cost __________ ____________ ____________

Total Manuf. Cost per unit __________ ____________ ____________

Total Incramental Cost to Make ___________

Calculate the total incremental cost of buying 60,000 units.

Incramental Costs to Buy

Relevant amount per unit Relevant fixed costs Total Relevant costs

________________ ____________ ____________ ___________

________________ ______________ _____________ _____________

________________ _______________ _____________ _____________

Total Incramental Cost to Buy _____________

Should the company continue to manufacture the part, or should it buy the part from the outside supplier?