Make or Buy Decision Somerset 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 36 of direct labor cost The unit costs to produce comparable carrying cases are expected to be as follows Direct materials $28 Direct labor 22 Factory overhead (36 of direct labor) 7 92 Total cost per unit $57 92 If Somerset 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 12 of the direct labor costs a Prepare a differential analysis dated April 30 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 Differential Analysis Make Carrying Case (Alt 1) or Buy Carrying Case (Alt 2) April 30 Make Carrying Case (Alternative 1) Buy Carrying Case (Alternative 2) Differential Effects (Alternative 2) Unit costs Purchase price $fill in the blank 5a64f00ba050f81 1 $fill in the blank 5a64f00ba050f81 2 $fill in the blank 5a64f00ba050f81 3 Direct materials fill in the blank 5a64f00ba050f81 4 fill in the blank 5a64f00ba050f81 5 fill in the blank 5a64f00ba050f81 6 Direct labor fill in the blank 5a64f00ba050f81 7 fill in the blank 5a64f00ba050f81 8 fill in the blank 5a64f00ba050f81 9 Variable factory overhead fill in the blank 5a64f00ba050f81 10 fill in the blank 5a64f00ba050f81 11 fill in the blank 5a64f00ba050f81 12 Fixed factory overhead fill in the blank 5a64f00ba050f81 13 fill in the blank 5a64f00ba050f81 14 fill in the blank 5a64f00ba050f81 15 Total unit costs $fill in the blank 5a64f00ba050f81 16 $fill in the blank 5a64f00ba050f81 17 $fill in the blank 5a64f00ba050f81 18 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

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 21, 2024

Make-or-Buy Decision Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $56 per unit. The company, which

Make-or-Buy Decision

Somerset 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 36% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials	$28
Direct labor	22
Factory overhead (36% of direct labor)	7.92
Total cost per unit	$57.92

If Somerset 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 12% of the direct labor costs.

a. Prepare a differential analysis dated April 30 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".

Differential Analysis
Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2)
April 30
	Make Carrying Case (Alternative 1)	Buy Carrying Case (Alternative 2)	Differential Effects (Alternative 2)
Unit costs:
Purchase price	$fill in the blank 5a64f00ba050f81_1	$fill in the blank 5a64f00ba050f81_2	$fill in the blank 5a64f00ba050f81_3
Direct materials	fill in the blank 5a64f00ba050f81_4	fill in the blank 5a64f00ba050f81_5	fill in the blank 5a64f00ba050f81_6
Direct labor	fill in the blank 5a64f00ba050f81_7	fill in the blank 5a64f00ba050f81_8	fill in the blank 5a64f00ba050f81_9
Variable factory overhead	fill in the blank 5a64f00ba050f81_10	fill in the blank 5a64f00ba050f81_11	fill in the blank 5a64f00ba050f81_12
Fixed factory overhead	fill in the blank 5a64f00ba050f81_13	fill in the blank 5a64f00ba050f81_14	fill in the blank 5a64f00ba050f81_15
Total unit costs	$fill in the blank 5a64f00ba050f81_16	$fill in the blank 5a64f00ba050f81_17	$fill in the blank 5a64f00ba050f81_18

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.