EX 11-7

EX 11-7 Make-or-buy decision Obj. 1 Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of \$24 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 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 associated with the cases are expected to be 25% 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. b. On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? Explain