omputer Company has been purchasing carrying cases for its portable computers at a purchase price of $56 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 46% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Line Item Description Amount Direct materials
Make-or-Buy Decision
Pizana Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $56 per unit. The company, which is currently operating below full capacity, charges factory
| Line Item Description | Amount |
|---|---|
| Direct materials | $26.00 |
| Direct labor | 17.00 |
| Factory overhead (46% of direct labor) | 7.82 |
| Total cost per unit | $50.82 |
If Pizana Computer Company manufactures the carrying cases, fixed
Question Content Area
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".
| Line Item Description | Make Carrying Case (Alternative 1) |
Buy Carrying Case (Alternative 2) |
Differential Effects (Alternative 2) |
|---|---|---|---|
| Unit costs: | |||
| Purchase price | $Purchase price | $Purchase price | $Purchase price |
| Direct materials | Direct materials | Direct materials | Direct materials |
| Direct labor | Direct labor | Direct labor | Direct labor |
| Variable factory overhead | Variable factory overhead | Variable factory overhead | Variable factory overhead |
| Fixed factory overhead | Fixed factory overhead | Fixed factory overhead | Fixed factory overhead |
| Total unit costs | $Total unit costs | $Total unit costs | $Total unit costs |
Question Content Area
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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