Connected Technologies, Inc. has been purchasing carrying cases for its portable tablets at a delivered cost of $26.00 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at a rate of 55% of direct labor cost. The total unit costs to produce comparable carrying cases are expected to be as follows: Direct materials                                          $ 8.00 Direct Labor                                                $ 13.00 Factory overhead (55% of direct labor)      $ 7.15 Total cost per unit                                       $ 28.15 If Connected Technologies manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 25% of the direct labor costs. Prepare a differential analysis report for the make-or-buy decision. On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? Explain.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Connected Technologies, Inc. has been purchasing carrying cases for its portable tablets at a delivered cost of $26.00 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at a rate of 55% of direct labor cost. The total unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials                                          $ 8.00

Direct Labor                                                $ 13.00

Factory overhead (55% of direct labor)      $ 7.15

Total cost per unit                                       $ 28.15

If Connected Technologies manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 25% of the direct labor costs.

  1. Prepare a differential analysis report for the make-or-buy decision.
  2. On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? Explain.
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