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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.

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** Somerset Computer Company has been purchasing carrying cases for its portable computers at a price of $24 per unit. The company, currently operating below full capacity, charges factory overhead to production at 40% of direct labor cost. The expected unit costs to produce comparable carrying cases are 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 Carrying Case <br>(Alternative 1) | Buy Carrying Case <br>(Alternative 2) | Differential Effects <br>(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 be _______ to manufacture the carrying cases. Fixed factory overhead is _______ to this decision. (Note: Students are expected to fill in the table and blanks with calculated values based on the given context and instructions.)
Transcribed Image Text:**Make-or-Buy Decision** Somerset Computer Company has been purchasing carrying cases for its portable computers at a price of $24 per unit. The company, currently operating below full capacity, charges factory overhead to production at 40% of direct labor cost. The expected unit costs to produce comparable carrying cases are 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 Carrying Case <br>(Alternative 1) | Buy Carrying Case <br>(Alternative 2) | Differential Effects <br>(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 be _______ to manufacture the carrying cases. Fixed factory overhead is _______ to this decision. (Note: Students are expected to fill in the table and blanks with calculated values based on the given context and instructions.)
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