Question

Sage Company is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $13.00 per unit. The unit cost for the business to make the part is $22.00, including fixed costs and $11.00, excluding fixed costs. If 32,354 units of the part are normally purchased during the year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease from making the part rather than purchasing it

Answer 1

Answer:

$64,708 cost decrease

Explanation:

Calculation to determine the amount of differential cost increase or decrease from making the part rather than purchasing it

First step

Purchase cost =$13

Manufacturing cost = $11 (variable)

Profit in manufacturing =$13-$11

Profit in manufacturing=$2

Now let determine the amount of differential cost increase or decrease

Cost decrease by =$2*32,354

Cost ​decrease by $64,708

Therefore the amount of differential cost DECREASE from making the part rather than purchasing it is $64,708