Make-or-Buy Decision

Make-or-Buy Decision Matchless 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 42% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows: Direct materials Direct labor Factory overhead (42% of direct labor) 7.56 Total cost per unlt $28 18 $53.56 If Matchless 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 February 24 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 "O". For those boxes in which you ust enter subtracted or negative numbers use a minus sign If Matchless Cm puter 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 differentlal analysls dated February 24 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If required, round your answers to two declmal places. If an amount is zero, enter "o". For those boxes In which you must enter subtracted or negative numbers use a minus sign Differential Analysis Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2) February 24 Make Carrying Case (Alternative 1) Case (Alternative 2) on Income (Alternative 2) Buy Carrying Differential Effect Sales Price Costs: Purchase price Direct materials per unit Direct labor per unit Variable factory overhead per unit Fixed factory overhead per unit Income (Loss) b. Assuming there were no better alternative uses for the spare capacity, it would decislon. to manufacture the carrying cases. Fixed factory overhead is to this