Make or Buy

A company manufactures various-sized plastic bottles for its medicinal product. The manufacturing cost for small bottles is $160 per unit (100 bottles), including fixed costs of $36 per unit. A proposal is offered to purchase small bottles from an outside source for $101 per unit, plus $12 per unit for freight.

a. Prepare a differential analysis dated January 25 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 Bottles (Alt. 1) or Buy Bottles (Alt. 2)
January 25
	Make Bottles (Alternative 1)	Buy Bottles (Alternative 2)	Differential Effect (Alternative 2)
Unit costs:
Purchase price	$	$	$
Freight
Variable costs
Fixed factory overhead
Total unit costs	$	$	$

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