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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 39% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Line Item Description Amount Direct materials $28.00 Direct labor Factory overhead (39% of direct labor) Total cost per unit 19.00 7.41 $54.41 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.

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 39% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Line Item Description Amount Direct materials $28.00 Direct labor Factory overhead (39% of direct labor) Total cost per unit 19.00 7.41 $54.41 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.

FINANCIAL ACCOUNTING
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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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 39% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Line Item Description Amount Direct materials $28.00 Direct labor Factory overhead (39% of direct labor) Total cost per unit 19.00 7.41 $54.41 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.
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 39% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Line Item Description Amount Direct materials $28.00 Direct labor Factory overhead (39% of direct labor) Total cost per unit 19.00 7.41 $54.41 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 August 31 to determine if Socks should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Line Item Description Revenues Costs: Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Socks August 31 Variable cost of goods sold Variable selling and admin. expenses Fixed costs Profit (Loss) b. Should the Socks line be retained? Continue Discontinue Socks Differential Effects Socks (Alternative 1) (Alternative 2) (Alternative 2)
Transcribed Image Text:a. Prepare a differential analysis dated August 31 to determine if Socks should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Line Item Description Revenues Costs: Differential Analysis Continue (Alt. 1) or Discontinue (Alt. 2) Socks August 31 Variable cost of goods sold Variable selling and admin. expenses Fixed costs Profit (Loss) b. Should the Socks line be retained? Continue Discontinue Socks Differential Effects Socks (Alternative 1) (Alternative 2) (Alternative 2)
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