| Santos 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. Santos is considering buying the part from a supplier for a quoted price of $3.50 per unit guaranteed for a three-year period. |
| Calculate the total incremental cost of making 60,000 units. (Omit the “$” sign in your response.) |
| Total incremental cost | $ |
| Calculate the total incremental cost of buying 60,000 units. (Omit the “$” sign in your response.) |
| Total incremental cost | $ |
| Should the company continue to manufacture the part, or should it buy the part from the outside supplier? | ||||
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