Fremont Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $83 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 40% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials$57Direct labor20Factory overhead (40% of direct labor)8Total cost per unit$85 If Fremont 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 10% of the direct labor costs. Required:a.Prepare a differential analysis dated September 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.b.On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? Explain.Labels Cash flows from investing activities Unit costs Amount Descriptions Direct labor Direct materials Fixed factory overhead Gain on sale of investments Income (loss) Loss on sale of investments Purchase price Sales price Variable factory overhead a. Prepare a differential analysis dated September 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. Refer to the lists of Labels and Amount Descriptions for the exact wording of theanswer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.Differential AnalysisMake (Alternative 1) or Buy (Alternative 2) Carrying CaseSeptember 30Make CarryingDifferential Effect1Buy Carrying CaseCaseon Income(Alternative 1)(Alternative 2)(Alternative 2)234 (Label)568910 b. On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? Explain.Assuming there were no better alternative uses for the spare capacity, it wouldto manufacture the carrying cases because the cost savings would be $4 per unit. Fixed factory overhead isbecause it will continue whether the carrying cases are purchased or manufactured.

In decision making, lower costs are preferred as in this case, making is cost-efficient. Fixed costs…

Fremont Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $83 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 40% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $57 Direct labor 20 Factory overhead (40% of direct labor) 8 Total cost per unit $85 If Fremont 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 10% of the direct labor costs. Required: a. Prepare a differential analysis dated September 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. b. 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

Section: Chapter Questions

Problem 1Q

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Fremont Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $83 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 40% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows:


Direct materials	$57
Direct labor	20
Factory overhead (40% of direct labor)	8
Total cost per unit	$85

If Fremont 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 10% of the direct labor costs.

	Required:
a.	Prepare a differential analysis dated September 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.
b.	On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? Explain.

Labels
Cash flows from investing activities
Unit costs
Amount Descriptions
Direct labor
Direct materials
Fixed factory overhead
Gain on sale of investments
Income (loss)
Loss on sale of investments
Purchase price
Sales price
Variable factory overhead

a. Prepare a differential analysis dated September 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. Refer to the lists of Labels and Amount Descriptions for the exact wording of the
answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.
Differential Analysis
Make (Alternative 1) or Buy (Alternative 2) Carrying Case
September 30
Make Carrying
Differential Effect
1
Buy Carrying Case
Case
on Income
(Alternative 1)
(Alternative 2)
(Alternative 2)
2
3
4 (Label)
5
6
8
9
10

b. On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? Explain.
Assuming there were no better alternative uses for the spare capacity, it would
to manufacture the carrying cases because the cost savings would be $4 per unit. Fixed factory overhead is
because it will continue whether the carrying cases are purchased or manufactured.

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