Question

A customer has offered Premium Co. $800 per unit for 100 units. To fill the order, Chris would incur unit-level costs of $600 per unit and batch-level costs of $15,000. Premium Co. also incurred $20,000 of product-level costs to design the bench and $200,000 of facility-level costs. Calculate the amount of differential cost.

Answer 1



Step-by-step explanation:

The amount of differential cost is the difference between the cost that Premium Co. incurs to produce a batch of 100 benches and the cost that the customer is willing to incur to get those 100 benches.

Customer's cost = 800 dollar x 100 units = $80,000

Premium Co.'s cost = ($600 x 100units = $60,000) + ($15,000) + ($20,000 x 100units = $2,000,000) + ($200,000)

This is equal to $2,275,000

The differential cost is therefore

$2,275,000 - $80,000 = $2,195,000