The cost to produce Part A was $5 per unit in 2019.During 2020, it has increased to $8 per unit.In 2020, Supplier Company has offered to supply Part A for $6 per unit.For the make-or-buy decision,
A)incremental revenues are $1 per unit.
B)incremental costs are $3 per unit.
C)net relevant costs are $3 per unit.
D)differential costs are $2 per unit.

Question

Quizplus · Accepted Answer

Differential costs are the difference in costs between two alternatives. In this case, producing Part A in-house in 2020 would cost $8 per unit, while purchasing from the Supplier Company would cost $6 per unit. Therefore, the differential cost is $8 - $6 = $2 per unit.

The Cost to Produce Part a Was $5 Per Unit