Make or buy decision A1
Gilberto Company currently manufactures one of its crucial partsat a cost of $4.45 per unit. This cost is based on a normalproduction rate of 65,000 units per year. Variable costs are $1.95per unit, fixed costs related to making this part are $65,000 peryear, and allocated fixed costs are $58,500 per year. Allocatedfixed costs are unavoidable whether the company makes or buys thepart. Gilberto is considering buying the part from a supplier for aquoted price of $3.50 per unit guaranteed for a three-year period.Should the company continue to manufacture the part, or should itbuy the part from the outside supplier? Support your answer withanalyses.
Check $35,750 increased costs to buy
Make or buy decision A1
Gilberto Company currently manufactures one of its crucial partsat a cost of $4.45 per unit. This cost is based on a normalproduction rate of 65,000 units per year. Variable costs are $1.95per unit, fixed costs related to making this part are $65,000 peryear, and allocated fixed costs are $58,500 per year. Allocatedfixed costs are unavoidable whether the company makes or buys thepart. Gilberto is considering buying the part from a supplier for aquoted price of $3.50 per unit guaranteed for a three-year period.Should the company continue to manufacture the part, or should itbuy the part from the outside supplier? Support your answer withanalyses.
Check $35,750 increased costs to buy
Related questions
Gilberto Company currently manufactures 60,000 units per year ofone of its crucial parts. Variable costs are $1.60 per unit, fixedcosts related to making this part are $60,000 per year, andallocated fixed costs are $30,000 per year. Allocated fixed costsare unavoidable whether the company makes or buys the part.Gilberto is considering buying the part from a supplier for aquoted price of $2.80 per unit guaranteed for a three-yearperiod.
Calculate the total incremental cost of making 60,000 and buying60,000 units. Should the company continue to manufacture the part,or should it buy the part from the outside supplier?
Calculate the total incremental cost of making 60,000 units.(Round cost per unit answer to 2 decimal places.)
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Calculate the total incremental cost of buying 60,000 units.(Round cost per unit answer to 2 decimal places.)
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Should the company continue to manufacture the part, or shouldit buy the part from the outside supplier?
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X Company currently buys a part from a supplier for $13.72 per unit but is considering making the part itself next year. This year, they purchased 3,300 units of this part; next year, they think they will need 3,800 units. Estimated costs to make the part are:
| Per-Unit | Total | ||
| Direct materials | $3.74 | $12,342 | |
| Direct labor | 4.88 | 16,104 | |
| Variable overhead | 2.60 | 8,580 | |
| Fixed overhead | 4.00 | 13,200 | |
| Total | $15.22 | $50,226 | |
Of the estimated fixed overhead, $6,468 are common costs that would be allocated to the part; the rest would be additional fixed overhead costs. X Company currently rents unused factory space for $2,600; it will have to use this space to make the part. If X Company makes the part instead of buying it, it will save ?
I tried:
| Per Unit | For 3,800 units | |
| Direct material | $ 3.74 | $ 14,212 |
| Add: Direct Labor | $ 4.88 | $ 18,544 |
| Add: Variable overhead | $ 2.60 | $ 9,880 |
| Add: Fixed overhead | $ 3.7421 | $ 14,220 |
| Total | $ 14.962 | $ 56,856 |
Fixed overhead per unit = ($ 13,200 - $ 6,468)/3,300 = $ 6,732/3,300 = $ 2.04
*Fixed overhead = $ 6,468 + (2.04 x 3,800) = $ 6,468 + 7,752 = $ 14,220
Cost for purchasing = $ 13.72 x 3,800 = $ 52,136
Cost of making = Total cost for making + rent opportunity = $ 56,856 + $ 2,600 = $ 59,456
Save in making = $ 52,136 - $ 59,456 = ($ 7,320)
But this was incorrect
