Make-or-Buy Decision Pizana Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $57 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 38% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials Direct labor Factory overhead (38% of $25.00 17.00 direct labor) < Total cost per unit 6.46 $48.46 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 12% 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 May 31 Make Carrying Case Buy Carrying Case Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Unit costs: Purchase price Direct materials Direct labor Variable factory overhead Fixed factory overhead Total unit costs Feedback Check My Work a. For the make and buy alternatives provide the unit costs. Use percentage to separate variable and fixed costs. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2. b. Assuming there were no better alternative uses for the spare capacity, it would be advisable factory overhead is irrelevant to this decision. ✓ to manufacture the carrying cases. Fixed
Make-or-Buy Decision Pizana Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $57 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 38% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials Direct labor Factory overhead (38% of $25.00 17.00 direct labor) < Total cost per unit 6.46 $48.46 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 12% 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 May 31 Make Carrying Case Buy Carrying Case Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Unit costs: Purchase price Direct materials Direct labor Variable factory overhead Fixed factory overhead Total unit costs Feedback Check My Work a. For the make and buy alternatives provide the unit costs. Use percentage to separate variable and fixed costs. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2. b. Assuming there were no better alternative uses for the spare capacity, it would be advisable factory overhead is irrelevant to this decision. ✓ to manufacture the carrying cases. Fixed
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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 $57 per unit. The company,
which is currently operating below full capacity, charges factory overhead to production at the rate of 38% of direct labor cost. The unit costs
to produce comparable carrying cases are expected to be as follows:
Direct materials
Direct labor
Factory overhead (38% of
$25.00
17.00
direct labor)
<
Total cost per unit
6.46
$48.46
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 12% 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
May 31
Make Carrying Case Buy Carrying Case Differential Effects
(Alternative 1) (Alternative 2) (Alternative 2)
Unit costs:
Purchase price
Direct materials
Direct labor
Variable factory overhead
Fixed factory overhead
Total unit costs
Feedback
Check My Work
a. For the make and buy alternatives provide the unit costs. Use percentage to separate variable and fixed costs. Determine the
differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2.
b. Assuming there were no better alternative uses for the spare capacity, it would be advisable
factory overhead is irrelevant
to this decision.
✓ to manufacture the carrying cases. Fixed
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