### Cost Analysis of Manufacturing Portable Computer Carrying Cases**Scenario Overview:**Companion Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $57 per unit. Currently, the company operates below full capacity and applies factory overhead to production at a rate of 46% of direct labor costs. The expected fully absorbed unit costs to produce similar carrying cases are detailed below:**Cost Breakdown:**- **Direct Materials:** $28- **Direct Labor:** $16- **Factory Overhead (46% of Direct Labor):** $7.36- **Total Cost per Unit:** $51.36**Considerations:**Should Companion Computer Company choose to manufacture the carrying cases internally, the fixed factory overhead costs will remain unchanged. However, variable factory overhead costs associated with the cases are anticipated to equate to 14% of the direct labor costs. This analysis aids in understanding the cost implications and the potential savings from producing carrying cases in-house instead of purchasing them externally. **Differential Analysis: Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2)** *Date: February 24*| | Make Carrying Case (Alternative 1) | Buy Carrying Case (Alternative 2) | Differential Effect on Income (Alternative 1 - Alternative 2) ||---------------------|------------------------------------|-----------------------------------|---------------------------------------------------------------|| **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)** | $ | $ | $ |### Explanation:This table is a differential analysis, comparing the financial implications of two alternatives for handling carrying cases: making them in-house (Alternative 1) or buying them (Alternative 2). Each alternative lists potential costs involved, including purchase price, direct materials, direct labor, and factory overhead. The analysis helps to determine which option might lead to higher income or lower loss by calculating the differential effect on income.

Fixed factory overhead per unit = Direct Labor per unit x (46%-14%) = $16*(46%-14%) = $5.12

Answered: Companion Computer Company has been…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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