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sage company is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $17.00 per unit. the unit cost for the business to make the part is $20.00, including fixed costs, and $12.00, not including fixed costs. if 30,314 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

Answer :

The amount of differential cost increase or decrease from making the part rather than purchasing it would be a $151,570.

Differential cost = (Current purchasing price - Manufacturing cost excluding fixed cost) x 33,000

=> ($17 - $12) x 30,314 = $151,570

Since the company is presently paying $17 in keeping with unit, price saved per unit while synthetic inside the agency can be the distinction between modern price and production cost with out constant fee. The fee such as fixed cost might not be considered to calculate the financial savings due to the fact the enterprise's unused capacity can be utilized that may not growth constant value. hence the differential value could be as beneath:

Differential price is the difference between the price of opportunity choices, or of a alternate in output degrees. The idea is used while there are more than one possible options to pursue, and a preference ought to be made to pick out one option and drop the others

Calculating differential price can assist a commercial enterprise decide between capability solutions or devise a possible opportunity to the problem in question. regularly, loss, sales and profit are elements that could affect the selection.

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