Make-or-Buy Decision Somerset 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: Direct materials $29 Direct labor 18 Factory overhead (39% of direct labor) 7.02 Total cost per unit $54.02 f Somerset 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 April 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If required, round your answers to two decimal places. If an amount is zero, enter "0". Differential Analysis Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2) April 30 Make Buy Carrying Carrying Differential Case Case Effects (Alternative 1) (Alternative 2) (Alternative 2) Unit costs: Purchase price -54.02 x Direct materials 29.00 Direct labor 18 Variable factory overhead 2.16 V Fixed factory overhead -4.86 V -4.86 Total unit costs 54.02 V -58.88 X Feedback Check My Work 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 Somerset 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: Direct materials $29 Direct labor 18 Factory overhead (39% of direct labor) 7.02 Total cost per unit $54.02 f Somerset 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 April 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If required, round your answers to two decimal places. If an amount is zero, enter "0". Differential Analysis Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2) April 30 Make Buy Carrying Carrying Differential Case Case Effects (Alternative 1) (Alternative 2) (Alternative 2) Unit costs: Purchase price -54.02 x Direct materials 29.00 Direct labor 18 Variable factory overhead 2.16 V Fixed factory overhead -4.86 V -4.86 Total unit costs 54.02 V -58.88 X Feedback Check My Work 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
Somerset 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:
Direct materials
$29
Direct labor
18
Factory overhead (39% of direct labor)
7.02
Total cost per unit
$54.02
If Somerset Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be
12% of the direct labor costs.
a. Prepare a differential analysis dated April 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If required, round your answers to
two decimal places. If an amount is zero, enter "0".
Differential Analysis
Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2)
April 30
Make
Buy
Carrying
Carrying
Differential
Case
Case
Effects
(Alternative 1) (Alternative 2)
(Alternative 2)
Unit costs:
Purchase price
-54.02
2$
Direct materials
29.00
Direct labor
18
Variable factory overhead
2.16
Fixed factory overhead
-4.86
-4.86
Total unit costs
54.02
-58.88
$
Feedback
Check My Work
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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