Make or Buy

A company manufactures various-sized plastic bottles for its medicinal product. The manufacturing cost for small bottles is $152 per unit (100 bottles), including fixed costs of $30 per unit. A proposal is offered to purchase small bottles from an outside source for $99 per unit, plus $12 per unit for freight.

Question Content Area

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

Question Content Area

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