Companion Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $55 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate 46% of direct labor cost. The total unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $26.00 Direct labor 20.00 Factory overhead (46% of direct labor) 9.2 Total cost per unit $55.2 If Companion 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 Carrying Case (Alternative 1) or Buy Carrying Case (Alternative 2). If required, round your answers to two decimal places. If an amount zero, enter "0". 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 Differential Effects (Alternative 2) Make Carrying Buy Carrying Case (Alternative 1) Case (Alternative 2) Unit costs: Purchase price Direct materials per unit
Companion Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $55 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate 46% of direct labor cost. The total unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $26.00 Direct labor 20.00 Factory overhead (46% of direct labor) 9.2 Total cost per unit $55.2 If Companion 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 Carrying Case (Alternative 1) or Buy Carrying Case (Alternative 2). If required, round your answers to two decimal places. If an amount zero, enter "0". 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 Differential Effects (Alternative 2) Make Carrying Buy Carrying Case (Alternative 1) Case (Alternative 2) Unit costs: Purchase price Direct materials per unit
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Make-or-Buy Decision
Companion Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $55 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 total unit costs to produce comparable carrying cases are expected to be as follows:
Direct materials
$26.00
Direct labor
20.00
Factory overhead (46% of direct labor)
9.2
Total cost per unit
$55,2
If Companion 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 Carrying Case (Alternative 1) or Buy Carrying Case (Alternative 2). If required, round your answers to two decimal places. If an amount is
zero, enter "0". 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)
Buy Carrying
Differential Effects
(Alternative 2)
Unit costs:
Purchase price
Direct materials per unit
Direct labor per unit
Variable factory overhead per unit
Fixed factory overhead per unit
Total unit costs
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.
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