A company owns equipment that is used to manufacture important parts for its pro

Question

A company owns equipment that is used to manufacture important parts for its production process. Because the equipment is repeatedly breaking down, the company plans to sell the equipment for $10,000 and to select one of the following alternatives: (1) acquire new equipment for $80,000 and continue to manufacture the part at the same variable cost, or (2) purchase the parts from an outside company at $4 per part. In the short run the company should quantitatively analyze the alternatives by comparing the variable cost of manufacturing the parts:
A. Plus $80,000, to the cost of buying the parts.
B. To the cost of buying the parts less $10,000.
C. Less $10,000 to the cost of buying the parts.
D. To the cost of buying the parts.

Explanation / Answer

D. To the cost of buying the parts.

Since we use incremental anlysis in short run

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