Make-or-Buy Decision Somerset 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 44% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials Direct labor $25 20 Factory overhead (44% of direct labor) 8.8 Total cost per unit $53.8 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 13% 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 Buy Carrying Case (Alternative 1) (Alternative 2) Differential Effects (Alternative 2) Unit costs: Purchase price Direct materials Direct labor Variable factory overhead Fixed factory overhead Total unit costs b. Assuming there were no better alternative uses for the spare capacity, it would to this decision. be advisable not be advisable to manufacture the carrying cases. Fixed factory overhead is Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $597,200 and has $352,200 of accumulated depreciation to date, with a new machine that has a purchase price of $486,800. The old machine could be sold for $62,700. The annual variable production costs associated with the old machine are estimated to be $157,400 per year for eight years. The annual variable production costs for the new machine are estimated to be $102,200 per year for eight years. a.1 Prepare a differential analysis dated May 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) May 29 Continue with Old Machine Replace Old Machine Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues: Proceeds from sale of old machine Costs: Purchase price Variable productions costs (8 years) Profit (Loss) Q QQ a.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. a.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. b. What is the sunk cost in this situation? The sunk cost is $