7. Make-or-Buy Dicision

Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $61 par unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 38% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: If Somerset Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs assoclated with the cases are expected to be 14% of the direct labor costs. a. Prepare a differential analysis dated April 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". b. Assuming there were no better alternative uses for the spare capacity, it would cases, Fixed factory overhead is to this decision. to manufacture the carrying