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19 September, 05:18

The cost to produce Part A was $12 per unit in 2019. During 2020, it has increased to $15 per unit. In 2020, Sandhill Company has offered to supply Part A for $11 per unit. For the make-or-buy decision:

a) incremental revenues are $4 per unit.

b) net relevant costs are $3 per unit.

c) differential costs are $4 per unit.

d) incremental costs are $3 per unit.

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  1. 19 September, 05:46
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    Differential cost = $4 per unit

    Explanation:

    For a make or buy decision the relevant cash flows include

    the differential variable of the two options savings from avoidable fixed costs associated with internal production

    Differential cost = internal cost - External purchase price

    = 15 - 11

    = $4 per unit
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