Make-or-Buy Decision

Connected Technologies Company has been purchasing carrying cases for its portable tablets at a delivered cost of $56 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 41% of direct labor cost. The total unit costs to produce comparable carrying cases are expected to be as follows:

 

Line Item Description	Cost per Unit
Direct materials	$25.00
Direct labor	19.00
Factory overhead (41% of direct labor)	7.79
Total cost per unit	$51.79

 

If Connected Technologies 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 12% of the direct labor costs.

Question Content Area

 

a. create a differential analysis report for the make-or-buy decision. Enter your final answer as a positive amount if it represents a net cost savings; enter a negative amount if it represents an increase in cost.

Line Item Description	Amount	Amount
Purchase price of carrying case		$Purchase price of carrying case
Differential cost to manufacture carrying case:
Direct materials	$Direct materials
Direct labor	Direct labor
Variable factory overhead	Variable factory overhead	blank
Total	blank	Total
Cost increase from manufacturing carrying caseCost savings from manufacturing carrying case		$- Select -

 

Question Content Area

 

b.   On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them?
 

Manufacture the carrying cases.Continue to purchase the carrying cases.