Make-or-Buy Decision

Companion Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $61 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 40% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials	$28
Direct labor	17
Factory overhead (40% of direct labor)	6.8
Total cost per unit	$51.8

If Companion Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 13% of the direct labor costs.

a. Prepare a differential analysis dated February 24 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If required, round your answers to two decimal places. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis
Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2)
February 24
	Make Carrying Case (Alternative 1)	Buy Carrying Case (Alternative 2)	Differential Effect on Income (Alternative 2)
Sales Price	$fill in the blank daff52fdafc5fea_1	$fill in the blank daff52fdafc5fea_2	$fill in the blank daff52fdafc5fea_3
Costs:
Purchase price	$fill in the blank daff52fdafc5fea_4	$fill in the blank daff52fdafc5fea_5	$fill in the blank daff52fdafc5fea_6
Direct materials per unit	fill in the blank daff52fdafc5fea_7	fill in the blank daff52fdafc5fea_8	fill in the blank daff52fdafc5fea_9
Direct labor per unit	fill in the blank daff52fdafc5fea_10	fill in the blank daff52fdafc5fea_11	fill in the blank daff52fdafc5fea_12
Variable factory overhead per unit	fill in the blank daff52fdafc5fea_13	fill in the blank daff52fdafc5fea_14	fill in the blank daff52fdafc5fea_15
Fixed factory overhead per unit	fill in the blank daff52fdafc5fea_16	fill in the blank daff52fdafc5fea_17	fill in the blank daff52fdafc5fea_18
Income (Loss)	$fill in the blank daff52fdafc5fea_19	$fill in the blank daff52fdafc5fea_20	$fill in the blank daff52fdafc5fea_21

b. Assuming there were no better alternative uses for the spare capacity, it would to manufacture the carrying cases. Fixed factory overhead is to this decision.