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:

Payment Streams

A series of payments made over a period of time, often in the context of loans, annuities, or investments.

Equivalent

A term used to denote items, quantities, or expressions that have the same value or function, even though they may appear different at first glance.

Canada Savings Bonds

Canadian government savings products that are available for a limited period each year and offer a guaranteed rate of interest.

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