Differential Cost Associated with Adopting a New Production Method

Differential Cost Associated with Adopting a New Production Method

The engineering department at an auto-parts manufacturer recommends that the current dies (the base case) be replaced with higher quality dies (the alternative), which would result in substantial savings in manufacturing one of the company’s products. The higher cost of materials would be more than offset by the savings in machining time and electricity. If estimated monthly costs of the two alternatives are as shown in the accompanying table, what is the differential cost for going with better dies?

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