Make-or-Buy Decision Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $24 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: Direct materials $8.00 Direct labor 12.00 Factory overhead (40% of direct labor) 4.80 Total cost per unit $24.80 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 25% 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 an amount is zero, enter "0". If required, round your answers to two decimal places. Differential Analysis Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2) April 30 Make Buy Carrying Carrying Case (Alternative 1) (Alternative 2) (Alternative 2) Differential Case Effects Unit costs: Purchase price 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 Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $24 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: Direct materials $8.00 Direct labor 12.00 Factory overhead (40% of direct labor) 4.80 Total cost per unit $24.80 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 25% 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 an amount is zero, enter "0". If required, round your answers to two decimal places. Differential Analysis Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2) April 30 Make Buy Carrying Carrying Case (Alternative 1) (Alternative 2) (Alternative 2) Differential Case Effects Unit costs: Purchase price 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Homework, Chapter 25
Make-or-Buy Decision
Somerset Computer Company has been purchasing carrying cases for its portable
computers at a purchase price of $24 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:
Direct materials
$8.00
Direct labor
12.00
Factory overhead (40% of direct labor)
4.80
Total cost per unit
$24.80
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 25% 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 an amount is
zero, enter "0". If required, round your answers to two decimal places.
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
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.
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