The cost to produce Part A was $20 per unit in 2019. During 2020, it has increased to $23 per unit. In 2020, Supplier Company has offered to supply Part A for $18 per unit. For the make-or-buy decision,
A) incremental revenues are $5 per unit.
B) incremental costs are $3 per unit.
C) net relevant costs are $3 per unit.
D) differential costs are $5 per unit.

Question

Quizplus · Accepted Answer

Differential costs are the difference in cost between two alternatives. In this case, the difference between making the part in-house ($23) and buying it from the supplier ($18) is $5 per unit.

The Cost to Produce Part a Was $20 Per Unit