Make or Buy

A company manufactures various$-$sized plastic bottles for its medicinal product. The manufacturing cost for small bottles is $$168$ per unit $(100$ bottles$),$ including fixed costs of $$33$ per unit. A proposal is offered to purchase small bottles from an outside source for $$97$ per unit, plus $$12$ per unit for freight.

Question Content Area

a$.$ Prepare a differential analysis dated February $18$ to determine whether the company should make $($Alternative $1)$ or buy $($Alternative $2)$ the bottles, assuming fixed costs are unaffected by the decision. If an amount is zero, enter $"0".$

Differential Analysis

Make $($Alt$.1)$ or Buy $($Alt$.2)$ Bottles

February $18$

Line Item Description Make

Bottles

$($Alternative $1)$ Buy

Bottles

$($Alternative $2)$ Differential

Effects

$($Alternative $2)$

Unit costs:

Purchase price $Purchase price

$Purchase price

$Purchase price

Freight Freight

Freight

Freight

Variable costs Variable costs

Variable costs

Variable costs

Fixed factory overhead Fixed factory overhead

Fixed factory overhead

Fixed factory overhead

Total unit costs $Total unit costs

$Total unit costs

$Total unit costs

Question Content Area

b$.$ Determine whether the company should make $($Alternative $1)$ or buy $($Alternative $2)$ the bottles.