Question

Make-or-Buy Decision Fremont Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $62 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 42% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $25 Direct labor 17 7.14 Factory overhead (42% of direct labor) $49.14 Total cost per unit If Fremont Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 14% of the direct labor costs. a. Prepare a differential analysis dated September 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If required, round your answers to two decimal places. If an amount is zero, enter "0". Use a minus sign to indicate a loss.

Answer 1

of Manufacturing Note - s 25 Siret Direct Variable (417X Relenant caute Carrying Cases Materiale Labour factory Querhead 14% = $2.38 $94.38 Differential analyus Make Carrying Case UCAH I) or Buy Carrying Case (Alta September 30 o Make (AHI) Buy (AH2) Differental effect on Inom Salesprice & I62 - $62 Unit Costei e Purchase brice 7 Direct Materiale $25 Direct Lobour $17 Variable factory OH 02.38 Food factory duar head $2:38 - Income Clou $44.38 -$12.62 There is a loss of $ 17.62 ( Unit if carrying

Cases purchased Assuming there uses for the se preferrable Casee. Foed irrelevant in from outside were no better alternaties epare Capacity, it would to manufacture the Carrying factory ouerhead is. this decision.