00:01
So again, when you see differential analysis, you want to make sure that you just do both decisions on their own and only when you've done both sets of calculations that you compare them, right? so the first option, one, is to you produce in -house, right? you produce yourself and your cost here is 67 per unit, right? and this is 22 fixed, which means that it must be 45 variable cost, right? that's the decision.
00:37
So if you go the first way, you have to pay 67, 22 fixed and 45 variable.
00:42
The second option, two, is to purchase.
00:48
And if we purchase, we need 35 per unit plus $5 freight.
00:58
But here the key thing is, it's that what the fixed costs are, right? you see this idea that fixed costs are unaffected by the decision.
01:09
So that means that if we purchase, we still have to pay the fixed costs, right? the fixed costs are sunk.
01:14
We're still on the hook for it...