Make-or-Buy Decision Fremont Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $59 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 42% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $29 Direct labor 17 Factory overhead (42% of direct labor) 7.14 Total cost per unit $53.14 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 15% of the direct labor costs. a. Prepare a differential analysis dated September 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If required, round your answers to two decimal places. If an amount is zero, enter "0". Use a minus sign to indicate a loss. Differential Analysis Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2) September 30 Make Carrying Case (Alternative 1) Buy Carrying Case (Alternative 2) Differential Effect on Income (Alternative 2) Sales price $fill in the blank 9ef411f9f060f89_1 $fill in the blank 9ef411f9f060f89_2 $fill in the blank 9ef411f9f060f89_3 Unit costs: Purchase price fill in the blank 9ef411f9f060f89_4 fill in the blank 9ef411f9f060f89_5 fill in the blank 9ef411f9f060f89_6 Direct materials fill in the blank 9ef411f9f060f89_7 fill in the blank 9ef411f9f060f89_8 fill in the blank 9ef411f9f060f89_9 Direct labor fill in the blank 9ef411f9f060f89_10 fill in the blank 9ef411f9f060f89_11 fill in the blank 9ef411f9f060f89_12 Variable factory overhead fill in the blank 9ef411f9f060f89_13 fill in the blank 9ef411f9f060f89_14 fill in the blank 9ef411f9f060f89_15 Fixed factory overhead fill in the blank 9ef411f9f060f89_16 fill in the blank 9ef411f9f060f89_17 fill in the blank 9ef411f9f060f89_18 Income (Loss) $fill in the blank 9ef411f9f060f89_19 $fill in the blank 9ef411f9f060f89_20 $fill in the blank 9ef411f9f060f89_21 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.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Make-or-Buy Decision
Fremont Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $59 per unit. The company, which is currently operating below full capacity, charges factory
| Direct materials | $29 |
| Direct labor | 17 |
| Factory overhead (42% of direct labor) | 7.14 |
| Total cost per unit | $53.14 |
If Fremont Computer Company manufactures the carrying cases, fixed
a. Prepare a differential analysis dated September 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If required, round your answers to two decimal places. If an amount is zero, enter "0". Use a minus sign to indicate a loss.
| Differential Analysis | |||
| Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2) | |||
| September 30 | |||
| Make Carrying Case (Alternative 1) | Buy Carrying Case (Alternative 2) | Differential Effect on Income (Alternative 2) | |
| Sales price | $fill in the blank 9ef411f9f060f89_1 | $fill in the blank 9ef411f9f060f89_2 | $fill in the blank 9ef411f9f060f89_3 |
| Unit costs: | |||
| Purchase price | fill in the blank 9ef411f9f060f89_4 | fill in the blank 9ef411f9f060f89_5 | fill in the blank 9ef411f9f060f89_6 |
| Direct materials | fill in the blank 9ef411f9f060f89_7 | fill in the blank 9ef411f9f060f89_8 | fill in the blank 9ef411f9f060f89_9 |
| Direct labor | fill in the blank 9ef411f9f060f89_10 | fill in the blank 9ef411f9f060f89_11 | fill in the blank 9ef411f9f060f89_12 |
| Variable factory overhead | fill in the blank 9ef411f9f060f89_13 | fill in the blank 9ef411f9f060f89_14 | fill in the blank 9ef411f9f060f89_15 |
| Fixed factory overhead | fill in the blank 9ef411f9f060f89_16 | fill in the blank 9ef411f9f060f89_17 | fill in the blank 9ef411f9f060f89_18 |
| Income (Loss) | $fill in the blank 9ef411f9f060f89_19 | $fill in the blank 9ef411f9f060f89_20 | $fill in the blank 9ef411f9f060f89_21 |
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.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
