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 $20.00, including fixed costs, and $11.00, excluding fixed costs. If 32,404 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?

$226,828 cost increase

$421,252 cost decrease

$64,808 cost decrease

$64,808 cost increase

Explanation / Answer

Differential cost = 32404*(13-11)= 64808 $64,808 cost decrease is the correctoption

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