During 2019, it cost Westa, Inc.$12 per unit to produce Part T5.During 2020, it has increased to $14 per unit.In 2020, Southside Company has offered to provide Part T5 for $9 per unit to Westa.As it pertains to the make-or-buy decision, which statement is true?
A)Differential costs are $5 per unit.
B)Incremental costs are $3 per unit.
C)Net relevant costs are $3 per unit.
D)Incremental revenues are $2 per unit.

Question

Quizplus · Accepted Answer

Differential costs, in the context of a make-or-buy decision, refer to the difference in cost between making a product in-house and buying it from an external supplier. In this case, the cost to make Part T5 in-house has increased to $14 per unit, while the offer from Southside Company is $9 per unit. The differential cost is the difference between the in-house production cost and the purchase cost, which is $14 - $9 = $5 per unit.

During 2019, It Cost Westa, Inc