Sage Company is operating at 90% of capacity and is currently purchasing a part

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 $21.00, including fixed costs, and $12.00, excluding fixed costs. If 33,894 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?

a.$33,894 cost increase

b.$33,894 cost decrease

c.$271,152 cost increase

d.$440,622 cost decrease

Explanation / Answer

DIfferential cost = 33,894 * ($13-$12)

DIfferential cost = $33,894

answer is : $33,894 cost decrease

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