Make-or-buy decision EX 25-7 OBJ.1 Diamond Computer Company has been purchasing carrying cases for its portable comput- urchase price of $59 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rte of 40% of direct labor oss 30 ers at a cost. The fully absorbed unit costs to produce comparable carrying cases are expecte to be as follows: Direct materials Direct labor Factory overhead (40% of direct labor) Total cost per unit 35.00 18.00 7.20 $60.20 If Diamond Computer Company manufactures the carrying cases, fixed factory over- head costs will not increase and variable factory overhead costs associated with the cases are expected to be 15% 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. b.On the basis of the data presented, would it be advisable to make the carry- ing cases or to continue buying them? Explain. Arial Ib N O P D E F Cells with non-gray backgrounds are protected and cannot be edited 11 An asterisk () will appear to the right of an incorrect entry 12 Enter a zero in cells you would otherwise leave blank 13 Differential Analysis Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2) February 24 15 Make Carrying Bey Carrying Diflerential Eflect Case Alternative 1) (Alternative 2) (Alternative 2) on Income Case Costs 20 Purchase price Direct materials per unit Direct labor per unit Variable factory overhead per unit Foxced factory overhead per unit ncome (loss) Assuming there are no better uses for the spare capacity the carrying cases should be since costs per unit by doing so to the decision by The fixed factory overhead is Ex. 25-7 O Type here to search CHRONDS AI: F3 F4 F5 F6 F8