Question

Make-or-Buy Decision Matchless Technologies Company has been purchasing carrying cases for its portable tablets at a delivered cost of $62 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 40% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $25.00 Direct labor 19.00 Factory overhead (40% of direct labor) 7.60 Total cost per unit $51.60 If Matchless Technologies 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 13% of the direct labor costs.

Answer 1

	Matchless Technologies Company
	Differential Analysis
	Purchase Price of Carrying case		$                            62.00
	Differential cost to manufacture carrying case
	Direct Material	$                              25.00
	Direct Labor	$                              19.00
	Variable factory overhead cost	$                                 2.47	$                            46.47
	Differential cost to manufacture carrying case($62-$46.47)		$                            15.53
*	Variable Factory overhead per unit=(Direct Labor per unit*13%)=($19*13%)	2.47
	Fixed Factory overhead per unit=Total factory overhead per unit-Variable factory overhead per unit	5.13
b)(i)	It is advisable to manufacture carrying cases because it would result cost saving of $6.25.
(ii)	Fixed Cost is irrelevant cost. It should be incurred whether purchase or buy in this case.