Make-or-Buy Decision Pizana Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $18 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate 40% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials Direct labor Factory overhead (40% of direct labor) Total cost per unit $5.00 8.00 3.20 $16.20 If Pizana 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 25% of the direct labor costs. a. Prepare a differential analysis dated May 31 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If an amount is zero, enter "0". If required, round your answers to two decimal places. Differential Analysis Make (Alt. 1) or Buy (Alt. 2) Carrying Case May 31 Line Item Description Unit costs: Purchase price Direct materials Direct labor Variable factory overhead Fixed factory overhead Total unit costs Make Carrying Case Buy Carrying Case (Alternative 1) (Alternative 2) goooo! Q☐☐☐☐QI Differential Effects (Alternative 2) 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.
Make-or-Buy Decision Pizana Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $18 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate 40% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials Direct labor Factory overhead (40% of direct labor) Total cost per unit $5.00 8.00 3.20 $16.20 If Pizana 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 25% of the direct labor costs. a. Prepare a differential analysis dated May 31 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If an amount is zero, enter "0". If required, round your answers to two decimal places. Differential Analysis Make (Alt. 1) or Buy (Alt. 2) Carrying Case May 31 Line Item Description Unit costs: Purchase price Direct materials Direct labor Variable factory overhead Fixed factory overhead Total unit costs Make Carrying Case Buy Carrying Case (Alternative 1) (Alternative 2) goooo! Q☐☐☐☐QI Differential Effects (Alternative 2) 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Make-or-Buy Decision
Pizana Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $18 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
Direct labor
Factory overhead (40%
of direct labor)
Total cost per unit
$5.00
8.00
3.20
$16.20
If Pizana 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 25% of the direct labor costs.
a. Prepare a differential analysis dated May 31 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If an amount is zero, enter "0". If required, round your answers to two decimal places.
Differential Analysis
Make (Alt. 1) or Buy (Alt. 2) Carrying Case
May 31
Line Item Description
Unit costs:
Purchase price
Direct materials
Direct labor
Variable factory overhead
Fixed factory overhead
Total unit costs
Make Carrying Case Buy Carrying Case
(Alternative 1) (Alternative 2)
Differential Effects
(Alternative 2)
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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