Make-or-Buy Decision Pizana Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $60 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 37% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $29.00 Direct labor 21.00 Factory overhead (37% of direct labor) 7.77 Total cost per unit $57.77 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 15% 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. Round your answers to two decimal places. If an amount is zero, enter "0". Differential Analysis Make (Alt. 1) or Buy (Alt. 2) Carrying Case Line Item Description Unit costs: Purchase price May 31 Make Carrying Case Buy Carrying Case Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Direct materials Direct labor Variable factory overhead Fixed factory overhead Total unit costs 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 $60 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 37% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $29.00 Direct labor 21.00 Factory overhead (37% of direct labor) 7.77 Total cost per unit $57.77 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 15% 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. Round your answers to two decimal places. If an amount is zero, enter "0". Differential Analysis Make (Alt. 1) or Buy (Alt. 2) Carrying Case Line Item Description Unit costs: Purchase price May 31 Make Carrying Case Buy Carrying Case Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Direct materials Direct labor Variable factory overhead Fixed factory overhead Total unit costs 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.
Chapter10: Short-term Decision Making
Section: Chapter Questions
Problem 6PA: Gent Designs requires three units of part A for every unit of Al that it produces. Currently, part A...
Related questions
Question
Transcribed Image Text:Make-or-Buy Decision
Pizana Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $60 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 37% of direct labor cost.
The unit costs to produce comparable carrying cases are expected to be as follows:
Direct materials
$29.00
Direct labor
21.00
Factory overhead (37% of direct labor)
7.77
Total cost per unit
$57.77
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 15% 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. Round your answers to two decimal places. If an amount is zero, enter "0".
Differential Analysis
Make (Alt. 1) or Buy (Alt. 2) Carrying Case
Line Item Description
Unit costs:
Purchase price
May 31
Make Carrying Case Buy Carrying Case Differential Effects
(Alternative 1)
(Alternative 2)
(Alternative 2)
Direct materials
Direct labor
Variable factory overhead
Fixed factory overhead
Total unit costs
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.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning