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 $30 per unit. A proposal is offered to purchase small bottles from an outside source for $101 per unit, plus $10 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".

Line Item DescriptionMake Bottles (Alternative 1)Buy Bottles (Alternative 2)Differential Effects (Alternative 2)Unit costs: Purchase price$Purchase price$Purchase price$Purchase priceFreightFreightFreightFreightVariable costsVariable costsVariable costsVariable costsFixed factory overheadFixed factory overheadFixed factory overheadFixed factory overheadTotal unit costs$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.