Grey Inc. has been purchasing a component, Z for $85 a unit. The company is currently operating at 75% of full capacity, and no
significant increase in production is anticipated in the near future. The cost of manufacturing a unit of Z, determined by absorption costing method, is estimated as follows: Direct materials $30 Direct labor 15 Variable factory overhead 26 Fixed factory overhead 10 Total $81 Prepare a differential analysis report, dated March 12 of the current year, on the decision to make or buy Part Z.
The marginal rate of substitution calculates the rate at which a consumer would give up a unit of one good in exchange for one unit of another good while maintaining the same level of utility.
