In your first day as a member of the controller's staff, you are asked to report on a contemplated change in the use of a new type of material in production. The new material is expected to result in a 10 percent reduction in materials costs but no changes in any other costs. Last year, materials costs were $6 per unit produced.

Other costs were $8 per unit produced. The company can sell as many units as it can manufacture. The materials vendor has informed the company that it will increase the materials prices by 5 percent in the coming year. In addition, analysis of other costs indicates that these costs may be expected to increase by 4 percent in the coming year.

a. Identify the differential costs for the decision to use the new material. What would the cost savings per unit be if the company were to use the new material instead of the old material?

b. Describe how management would use the information in (a), and any other appropriate information, to proceed with the contemplated use of the new material.