Make or Buy Decision:

Zee-Drive Ltd. is a computer manufacturer. One of the items they make is monitors. Zee-Drive has the opportunity to purchase 19,000 monitors from an outside supplier for $207 per unit. One of the company's cost-accounting interns prepared the following schedule of Zee-Drive's cost to produce 19,000 monitors:

Total cost of producing 19,000 monitors Unit costDirect materials$2,147,000$113Direct labor 1,330,000 70Variable factory overhead 722,000 38Fixed manufacturing overhead 551,000 29Fixed non-manufacturing overhead 836,000 44 $5,586,000$294

You are asked to look over the intern's estimate before the information is shared with members of management who will decide to continue to make the monitors or buy them. The company's controller believes that the estimate may be incorrect because it includes costs that are not relevant. If Zee-Drive buys the monitors, the direct labor force currently employed in producing the monitors will be terminated and there would be no termination costs incurred. There are no materials on hand and no commitments to suppliers to purchase materials, so all materials would need to be purchased to make the monitors. Variable overheads are avoidable if monitors are bought. Fixed manufacturing overhead costs would be reduced by $53,100, but non-manufacturing costs would remain the same if monitors are bought.

Fill in the differential analysis.

Make or Buy Decisions Differential Analysis ReportPurchase price of 19,000 monitors $fill in the blank 7465aafb405a018_3Differential cost to make: Direct materials$fill in the blank 7465aafb405a018_4 Direct laborfill in the blank 7465aafb405a018_5 Overheadfill in the blank 7465aafb405a018_6fill in the blank 7465aafb405a018_7Differential income (loss) from making monitors $fill in the blank 7465aafb405a018_8

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