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17 August, 23:18

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.

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  1. 18 August, 02:33
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    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
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