Question

Gelb Company currently manufactures 54,000 units per year of a key component for its manufacturing process. Variable costs are $5.15 per unit, fixed costs related to making this component are $73,000 per year, and allocated fixed costs are $80,500 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 54,000 units.

Answer 1

$351,100

Explanation:

The total incremental cost of making 54,000 units = Variable Cost Per Unit (54,000 unit) + Fixed Manufacturing Costs

Fixed Manufacturing Costs = $73,000

Variable costs are $5.15 per unit

Variable Cost Per Unit = $5.15 * 54,000 unit = $278,100

Hence, the total incremental cost of making 54,000 units = $278,100 + $73,000 = $351,100