Question
Make-or-Buy Decision Pizana Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $59 per unit. The company,
Make-or-Buy Decision Pizana Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $59 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: Direct materials $25.00 Direct labor 16.00 Factory overhead (41% of direct labor) Total cost per unit 6.56 $47.56 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 16% 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". Differential Analysis Make (Alt. 1) or Buy (Alt. 2) Carrying Case Line Item Description Unit costs: Purchase price May 31 Make Carrying Case Buy Carrying Case Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Direct materials Direct labor Variable factory overhead Fixed factory overhead Total unit costs Feedback Check My Work a. For the make and buy alternatives provide the unit costs. Use percentage to separate variable and fixed costs. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2. b. Assuming there were no better alternative uses for the spare capacity, it would be advisable to manufacture the carrying cases. Fixed factory overhead is irrelevant to this decision. ?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started