Diamond Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $59 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	$35.00
Direct labor	18.00
Factory overhead (40% of direct labor)	7.20
Total cost per unit	$60.20

If Diamond 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 February 24 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.
B.	On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? Explain.

Labels and Amount Descriptions

Labels
Cash flows from investing activities
Costs
Amount Descriptions
Direct materials per unit
Direct labor per unit
Fixed factory overhead per unit
Gain on sale of investments
Income (Loss)
Loss on sale of investments
Purchase price
Sales Price
Variable factory overhead per unit

Differential Analysis

A. Prepare a differential analysis dated February 24 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.

Differential Analysis

Make Carrying Case (Alternative 1) or Buy Carrying Case (Alternative 2)

February 24

1		Make Carrying Case	Buy Carrying Case	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
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