The Cost to Produce Part a Was $20 Per Unit

question 29

Multiple Choice

The cost to produce Part A was $20 per unit in 2021.During 2022 it has increased to $23 per unit.In 2022 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.

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Definitions:

Cost of Goods Sold

The direct costs related to the production of the goods that a company sells, including materials and labor.

Indirect Manufacturing Cost

Costs that are not directly traceable to specific units produced, such as utilities or rent for manufacturing facilities.

Relevant Range

The scope of activity within which the assumptions about fixed and variable cost behaviors hold true.

Direct Costs

Expenses that can be directly attributed to the production of specific goods or services.