Make-or-Buy Decision

Pizana Computer Company has been purchasing carrying cases for its portable computers at a purchase price 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 unit costs to produce comparable carrying cases are expected to be as follows:

Line Item Description	Amount
Direct materials	$29.00
Direct labor	21.00
Factory overhead (41% of direct labor)	8.61
Total cost per unit	$58.61

If Pizana 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 14% of the direct labor costs.

a. Prepare a differential analysis dated May 31 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. Round your answers to two decimal places. If an amount is zero, enter "0".

Line Item Description	Make Carrying Case (Alternative 1)	Buy Carrying Case (Alternative 2)	Differential Effects (Alternative 2)
Unit costs:
Purchase price	$Purchase price	$Purchase price	$Purchase price
Direct materials	Direct materials	Direct materials	Direct materials
Direct labor	Direct labor	Direct labor	Direct labor
Variable factory overhead	Variable factory overhead	Variable factory overhead	Variable factory overhead
Fixed factory overhead	Fixed factory overhead	Fixed factory overhead	Fixed factory overhead
Total unit costs	$Total unit costs	$Total unit costs	$Total unit costs

b. Assuming there were no better alternative uses for the spare capacity, it would be advisable or not be advisable to manufacture the carrying cases. Fixed factory overhead is relevant or irrelevant to this decision.