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 46% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials	$24
Direct labor	22
Factory overhead (46% of direct labor)	10.12
Total cost per unit	$56.12

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 16% 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 36979df6ff8b059_1	$fill in the blank 36979df6ff8b059_2	$fill in the blank 36979df6ff8b059_3
Direct materials	fill in the blank 36979df6ff8b059_4	fill in the blank 36979df6ff8b059_5	fill in the blank 36979df6ff8b059_6
Direct labor	fill in the blank 36979df6ff8b059_7	fill in the blank 36979df6ff8b059_8	fill in the blank 36979df6ff8b059_9
Variable factory overhead	fill in the blank 36979df6ff8b059_10	fill in the blank 36979df6ff8b059_11	fill in the blank 36979df6ff8b059_12
Fixed factory overhead	fill in the blank 36979df6ff8b059_13	fill in the blank 36979df6ff8b059_14	fill in the blank 36979df6ff8b059_15
Total unit costs	$fill in the blank 36979df6ff8b059_16	$fill in the blank 36979df6ff8b059_17	$fill in the blank 36979df6ff8b059_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.