A company manufactures various-sized plastic bottles for its medicinal product. The manufacturing cost for small bottles is $152 per unit (100 bottles), including fixed costs of $32 per unit. A proposal is offered to purchase small bottles from an outside source for $102 per unit, plus $11 per unit for freight. a. Prepare a differential analysis dated February 18 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the bottles, assuming fixed costs are unaffected by the decision. If an amount is zero, enter "0".
A company manufactures various-sized plastic bottles for its medicinal product. The manufacturing cost for small bottles is $152 per unit (100 bottles), including fixed costs of $32 per unit. A proposal is offered to purchase small bottles from an outside source for $102 per unit, plus $11 per unit for freight. a. Prepare a differential analysis dated February 18 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the bottles, assuming fixed costs are unaffected by the decision. If an amount is zero, enter "0".
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Make or Buy
A company manufactures various-sized plastic bottles for its medicinal product.
The manufacturing cost for small bottles is $152 per unit (100 bottles), including
fixed costs of $32 per unit. A proposal is offered to purchase small bottles from
an outside source for $102 per unit, plus $11 per unit for freight.
a. Prepare a differential analysis dated February 18 to determine whether the
company should make (Alternative 1) or buy (Alternative 2) the bottles,
assuming fixed costs are unaffected by the decision. If an amount is zero, enter
"0".
Differential Analysis
Make (Alt. 1) or Buy (Alt. 2) Bottles
February 18
Line Item Description
Unit costs:
Purchase price
Freight
Variable costs
Fixed factory overhead
Total unit costs
Make
Buy
Differential
Bottles
Bottles
Effects
(Alternative 1) (Alternative 2) (Alternative 2)
$
b. Determine whether the company should make (Alternative 1) or buy
(Alternative 2) the bottles.
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