B29 A x fx 1 Problem 3: Make or Buy 2 B C 3 Fremont Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $40 per unit. D E 8 5 6 the company, which is currently operating below full capacity charges factory overhead to production at the rate of 25% of direct labor costs. 7 The unit costs to produce comparable carrying cases are expected to be as follows: $16 20 11 Factory overhead (25% of direct labor) 5 $41 9 Direct materials 10 Direct labor 12 Total cost per unit 13 14 If Fremont Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variab 15 factory overhead costs associated with the cases are expected to be 5% of the direct labor costs. 16 17 Required: 18 A. Prepare a differential analysis dated September 30 to determine whether the company should make (Alternative 1) or 19 buy (Alternative 2) the carrying cases. 20 B. On the basis of data presented, would it be advisable to make or continue to by the carrying Cases. Explain. 21 22 Solution: 23 A 24 222223 25 26 27 28 29 Sales price 30 Unit costs: 31 Purchase price 32 Direct materials 33 Direct labor 34 Variable factory overhead 35 Fixed factory overhead 36 Income (loss) 37 38 B. Explanation 39 40 41 42 43 44 45 46 Differential Analysis Make (Alt. 1) or Buy (Alt. 2) Carrying Case September 30 Make Carrying Case Buy Carrying Case Differential effect of Alt. 2 on income (Alternative 1) (Alternative 2) (Alt. 2-Alt. 1) $ $ Problem1 Problem2 Problem3 Problem4 Problem5 Ready Accessibility: Investigate 76F Mostly cloudy $