A manager decides to sign a contract with a new supplier in order to reduce the costs of direct materials.

How would they determine their cost savings?

Add the costs from the old supplier and new supplier together and divide by two.

Determine fixed costs associated with the purchasing from the new supplier, then subtract those from the cost of the original supplier.

Calculate the cost saving per unit, find the cost per equivalent unit then determine the overall cost savings from the new supplier.

Calculate variable cost savings, multiply the variable cost savings by total manufacturing overhead.