Question

sage company is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $13.00 per unit. the unit cost for the business to make the part is $21.00, including fixed costs and $10.00, excluding fixed costs. if 31,718 units of the part are normally purchased during the year but could be manufactured using unused capacity, what would be the amount of differential cost increase or decrease from making the part rather than purchasing it?

Answer 1

The Sage Company is currently paying $13.00 per unit for a part utilized in its manufacturing operations and is currently running at 90% of capacity.

What would be the differential cost increase or decrease if the part were made instead of bought?

Reduction of $95,154, calculated as follows: 31,718*13 = 412,334, or 31,718*10 = 317,180; 412,334- 317,180= $95,154.

The term "manufacturing activities" means what exactly?

Unlike maintenance, supply and distribution, health and safety, emergency response, human resources, security, information technology, and other entities that support the infrastructure, manufacturing operations are concerned with the running of a plant.Automotive businesses, bakeries, shoemakers, and tailors are all examples of manufacturing because they all produce goods rather than provide services. Mining or logging, for instance, do not constitute manufacturing because they do not transform raw materials into finished commodities.

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