Question

Fremont Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $67 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 50% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials	$40
Direct labor	20
Factory overhead (50% of direct labor)	10
Total cost per unit	$70

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 15% of the direct labor costs.

Required:

a.

Prepare a differential analysis dated September 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.

a. Prepare a differential analysis dated September 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. Refer to the lists of Labels which you must enter subtracted or negative numbers use a minus sign. If there and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes is no amount or an amount is zero, enter "O". A colon ( will automatically appear if required. Score: 70/125 Differential Analysis Make (Alternative 1) or Buy (Alternative 2) Carrying Case September 30 Make Carrying Buy Carrying Differential 1 Case Case Effect on Income (Alternative 1) (Alternative 2) (Alternative 2) 3Sales price $0.00 $0.00 $0.00 4 Unit costs: Purchase price $0.00 $67.00 $(67.00) Direct materials 40.00 0.00 40.00 Direct labor 20.00 0.00 20.00 Variable factory overhead 8 Fixed factory overhead 9 $(70.00) $(74.00) 10 Income (loss)

Answer 1

Solution a:

Differential Analysis - Making Carrying Case (alt 1) or Buying Carrying Case (Alt2) Making Carrying Buying Differential Effect on Particulars Case (Alt 1) 19 Carrying Case Income (Alternative 2) (Alt 2) $0.00 $0.00 $0.00 Sales price 10 11 12 13 14 15 16 Costs: Purchase Price Direct material per unit Direct Labor per unit Variable overhead per unit ($20*15%) Fixed factory overhead per unit ($20*(50%-15%)] $0.00 $40.00 $20.00 $3.00 $7.00 $67.00 $0.00 $0.00 $0.00 $7.00 $67.00 $40.00 $20.00 $3.00 $0.00 Income (Loss) $70.00 -$74.00 $4.00 17 18 et774 Sheet775 Sheet776 Sheet777 Sheet183 (8) Sheet779 Sheet780 Sheet106 (17)