**Make-or-Buy Decision**Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $58 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 44% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows:- **Direct materials:** $28- **Direct labor:** $19- **Factory overhead (44% of direct labor):** $8.36- **Total cost per unit:** $55.36If 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| Unit Costs | Make Carrying Case (Alternative 1) | Buy Carrying Case (Alternative 2) | Differential Effects (Alternative 2) ||----------------------------|------------------------------------|-----------------------------------|--------------------------------------|| 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.

Differential analysis compares the costs in the different alternatives. Fixed cost will be incurred…

Answered: uce comparable carrying cases are e -%…

Business

Accounting

uce comparable carrying cases are e -% of direct labor) $28 19 8.36 $55.36 .f. J

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 7E: Make-or-buy decision Somerset Computer Company has been purchasing carrying cases for its portable...

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