During 2011, it cost Westa, Inc.$12 per unit to produce Part T5.During 2012, it has increased to $14 per unit.In 2011, 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

The differential cost is the difference between the cost of making Part T5 in-house and the cost of buying it from Southside Company. In this case, it would cost Westa $14 per unit to make Part T5 in-house and $9 per unit to buy it from Southside Company, resulting in a differential cost of $5 per unit.

During 2011, It Cost Westa, Inc