Question

# Sage Company is operating at 90% of capacity and is currently purchasing a part used in...

Sage Company is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for \$13.00 per unit. The unit cost for the business to make the part is \$21.00, including fixed costs, and \$9.00, not including fixed costs. If 31,048 units of the part are normally purchased during the year but could be manufactured using unused capacity, the amount of differential cost increase or decrease from making the part rather than purchasing it would be a

a.\$124,192 cost decrease

b.\$248,384 cost increase

c.\$403,624 cost decrease

d.\$124,192 cost increase

 Answer: Amount of Differencial Cost         =   ( Unit Cost to make (-) Unit Cost to Purchase ) x Total Units         =    ( \$ 9 (-) \$ 13 ) x 31,048 Units         =       (\$ 4) x 31,048         = ( \$ 124,192 ) Cost decrease Amount of Differencial Cost =   ( \$ 124,192 ) Cost decrease Option (a ) is Correct

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