Gilberto Company currently manufactures one of its crucial parts at a cost of $4.30 per unit. This cost is based on a normal production rate of 80,000 units per year. Variable costs are $2.80 per unit, fixed costs related to making this part are $80,000 per year, and allocated fixed costs are $40,000 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 80,000 units.

Incremental costs to make
	Relevant Amount per Unit	Relevant fixed costs	Total relevant costs
Total incremental cost to make

Calculate the total incremental cost of buying 80,000 units.

Incremental costs to buy
	Relevant Amount per Unit	Relevant fixed costs	Total relevant costs
Total incremental cost to buy

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

	Buy
	Make