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: Line Item Description Amount Direct materials $5.00 Direct labor 8.00 Factory overhead (40% of direct labor) 3.20 Total cost per unit $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. Question Content Area 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 AnalysisMake (Alt. 1) or Buy (Alt. 2) Carrying CaseMay 31 Line Item Description Make Carrying Case(Alternative 1) Buy Carrying Case(Alternative 2) Differential Effects(Alternative 2) Unit costs: Purchase price $Purchase price $Purchase price $Purchase price Direct materials Direct materials Direct materials Direct materials Direct labor Direct labor Direct labor Direct labor Variable factory overhead Variable factory overhead Variable factory overhead Variable factory overhead Fixed factory overhead Fixed factory overhead Fixed factory overhead Fixed factory overhead Total unit costs $Total unit costs $Total unit costs $Total unit costs Question Content Area 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.

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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Line Item Description	Amount
Direct materials	$5.00
Direct labor	8.00
Factory overhead (40% of direct labor)	3.20
Total cost per unit	$16.20

Question Content Area

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 AnalysisMake (Alt. 1) or Buy (Alt. 2) Carrying CaseMay 31

Line Item Description	Make Carrying Case (Alternative 1)	Buy Carrying Case (Alternative 2)	Differential Effects (Alternative 2)
Unit costs:
Purchase price	$Purchase price	$Purchase price	$Purchase price
Direct materials	Direct materials	Direct materials	Direct materials
Direct labor	Direct labor	Direct labor	Direct labor
Variable factory overhead	Variable factory overhead	Variable factory overhead	Variable factory overhead
Fixed factory overhead	Fixed factory overhead	Fixed factory overhead	Fixed factory overhead
Total unit costs	$Total unit costs	$Total unit costs	$Total unit costs