Sparrow Co

question 46

Multiple Choice

Sparrow Co.is currently operating at 80% of capacity and is currently purchasing a part used in its manufacturing operations for $8.00 a unit.The unit cost for Sparrow Co.to make the part is $9.00,which includes $0.60 of fixed costs.If 4,000 units of the part are normally purchased each year but could be manufactured using unused capacity,what would be the amount of differential cost increase or decrease for making the part rather than purchasing it?

• A) $12,000 cost decrease
• B) $4,000 cost increase
• C) $20,000 cost decrease
• D) $1,600 cost increase

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Definitions:

Basidiospore

A type of spore produced by Basidiomycete fungi, which serves as a means of sexual reproduction.

Hypha

A long, branching filamentous structure of a fungus, which is the main mode of vegetative growth and collectively known as a mycelium.

Opisthokonts

A diverse group of eukaryotic organisms, including fungi, animals, and related groups, characterized by a single posterior flagellum in the motile stage.

Eukarya

One of the three domains of life; consists of organisms with cells featuring a nucleus and other membrane-bound organelles.