instructions:

Fremont Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $78 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:

Direct materials	$52
Direct labor	20
Factory overhead (40% of direct labor)	8
Total cost per unit	$80

If Fremont 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 10% of the direct labor costs.

Differential Analysis:

Differential Analysis

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

September 30

1		Make Carrying Case	Buy Carrying Case	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
3
4
5
6
7
8
9
10

Final Question:

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

Assuming there were no better alternative uses for the spare capacity, it would to manufacture the carrying cases because the cost savings would be $4 per unit. Fixed factory overhead is because it will continue whether the carrying cases are purchased or manufactured.