A business is operating at 90% of capacity and is currently purchasing a part us

Question

A business 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 $10.00, not including fixed costs. If 35,392 units of the part are normally purchased during the year but could be manufactured using unused capacity, determine the amount of differential cost increase or decrease from making the part rather than purchasing it.

Select the correct answer.

Explanation / Answer

Differential cost :

Differential cost decrease by (460096-353920) = -106176 if makin the part rather than purchasing it

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