Gelb Company currently manufactures 40,000 units per year of a key component for its manufacturing process. Variable costs are $1.95 per unit, fixed costs related to making this component are $65,000 per year, and allocated fixed costs are $58,500 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 units and buying 40,000 units. Should it continue to manufacture the component, or should it buy this component from the outside supplier?

Question

Gelb Company currently manufactures 40,000 units per year of a key component for its manufacturing process. Variable costs are $1.95 per unit, fixed costs related to making this component are $65,000 per year, and allocated fixed costs are $58,500 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 units and buying 40,000 units. Should it continue to manufacture the component, or should it buy this component from the outside supplier?
 

Expert Answer

Want to see the step-by-step answer?

See Answer

Check out a sample Q&A here.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

See Answer
*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.

Related Accounting Q&A

Find answers to questions asked by student like you

Q: A company must decide between scrapping or reworking units that do not pass inspection. The company ...

A: Step 1: Workings for the answer:

Q: Winkle, Kotter, and Zale is a small law firm that contains 10 partners and 12 support persons. The f...

A: 1-aCalculate predetermined overhead rate for Research and Documents Department:  

Q: Other accrued liabilities—warranties The balance of the Estimated Warranty Liability account was $25...

A: Calculate the amount of warranty expense for the year ended December 31, 2016.

Q: Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting an incom...

A: Multi-step income statement: The income statement represented in multi-steps with several sub-totals...

Q: What is the relationship between the amount shown in the adjusted trial balance column for an accoun...

A: Adjusted trial balance:  Adjusted trial balance is that statement which contains complete list of ac...

Q: The stockholders’ equity accounts of Cheyenne Corp. on January 1, 2017, were as follows. Preferre...

A: Step 1: Prepare journal entries to record the transactions:

Q: During the year ended December 31, SC engaged in the following transactions involving notes payable....

A: Journal entries is recording the of the transaction in the accounting journal in a chronological ord...

Q: Cost flow assumptions-FIFO AND LIFO using a periodic system  the beginning inventory was 600 units a...

A: FIFO or the First In First Out is the inventory valuation method in which the oldest inventory is di...

Q: What is the difference between grease payment and bribery?  Is grease payment legal per FCPA and per...

A: Grease payment: A grease payment is a payment made to the international or government agencies to ge...