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Make-or-Buy Decision Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $60 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 $60 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 37% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials $28
Direct labor 21
Factory overhead (37% of direct labor) 7.77
Total cost per unit $56.77

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 15% of the direct labor costs.

Question Content Area

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 fd3223f47fcc016_1 $fill in the blank fd3223f47fcc016_2 $fill in the blank fd3223f47fcc016_3
Direct materials fill in the blank fd3223f47fcc016_4 fill in the blank fd3223f47fcc016_5 fill in the blank fd3223f47fcc016_6
Direct labor fill in the blank fd3223f47fcc016_7 fill in the blank fd3223f47fcc016_8 fill in the blank fd3223f47fcc016_9
Variable factory overhead fill in the blank fd3223f47fcc016_10 fill in the blank fd3223f47fcc016_11 fill in the blank fd3223f47fcc016_12
Fixed factory overhead fill in the blank fd3223f47fcc016_13 fill in the blank fd3223f47fcc016_14 fill in the blank fd3223f47fcc016_15
Total unit costs $fill in the blank fd3223f47fcc016_16 $fill in the blank fd3223f47fcc016_17 $fill in the blank fd3223f47fcc016_18

Question Content Area

b. Assuming there were no better alternative uses for the spare capacity, it would

be advisablenot be advisable

to manufacture the carrying cases. Fixed factory overhead is

relevantirrelevant

to this decision.

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