ANSWER
A.
Make Carrying Case (Alternative 1) |
Buy Carrying Case (Alternative 2) |
Differential Effect on Income (Alternative 2) |
|
Cost: | |||
Purchase price | 61 | (61) | |
Direct materials per unit | 30 | 30 | |
Direct labor per unit | 19 | 19 | |
Variable factory overhead per unit (19*15%) | 2.85 | 2.85 | |
Fixed factory overhead per unit (19*(37%-15%)) | 4.18 | 4.18 | |
Income (Loss) | 56.03 | 65.18 | (9.15) |
B.
Assuming there were no better alternative uses for the spare capacity, it would be preferably to manufacture the carrying cases.Fixed factory overhead is not relevant to this decision.
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