September 30

1		Make Carrying Case	Buy Carrying Case	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
3
4
5
6
7
8
9
10

Fremont Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $81 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 60% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials	$51
Direct labor	20
Factory overhead (60% of direct labor)	12
Total cost per unit	$83

If Fremont 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 10% of the direct labor costs.

	Required:
a.	HOW WOULD YOU MAKE A DIFFERENTIAL ANALYSISdated September 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case.
b.	with the presented data would it be advisable to make the carrying cases or to continue buying them? Explain.