Cost Accounting Quiz
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DECISION MAKING USING COST INFORMATION
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A company manufactures a component internally at a variable cost of $50 per unit. Manufacturing the component requires 0.2 hours on a machine that is the company's primary production constraint. The company can purchase the same component from an external supplier for $62 per unit.
If the company buys the component, the freed-up machine time can be used to produce other products that generate, on average, $70 of contribution margin per machine hour. What is the financial advantage or disadvantage per unit of buying the component externally?
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