The cost to produce Part A was $5 per unit in 2015.During 2016, it has increased to $8 per unit.In 2016, 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 cost between two alternatives. In this case, the cost to produce in 2016 is $8, and the cost to buy is $6, resulting in a differential cost of $2 per unit.

The Cost to Produce Part a Was $5 Per Unit