Sparrow co. is currently operating at 80% of capacity and is currently purchasing a part used in its manufacturing operations for $8.00 a unit. the unit cost for sparrow co. to make the part is $9.00, which includes $0.60 of fixed costs. if 4,000 units of the part are normally purchased each year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease for making the part rather than purchasing it?

Question

Marquis

Business

24 July, 06:50

Sparrow co. is currently operating at 80% of capacity and is currently purchasing a part used in its manufacturing operations for $8.00 a unit. the unit cost for sparrow co. to make the part is $9.00, which includes $0.60 of fixed costs. if 4,000 units of the part are normally purchased each year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease for making the part rather than purchasing it?

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Karissa Faulkner · Answer 1

The answer to the following question is that there will be a $1,600 that will be added to the cost. The differential cost is defined to be the dissimilarity or the difference between the various alternative decisions or business decisions.