Hart Computer Company has been purchasing carrying cases for its portable comput
ID: 2453374 • Letter: H
Question
Hart Computer Company has been purchasing carrying cases for its portable computers at a delivered cost of $68 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 35% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be: Direct Materials $25.00 Direct Labor $32.00 Factory overhead(35% of direct labor) $11.20 Total cost per unit $ 68.20 If Hart Computer company manufactures the carrying cases, fixed factory 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 report, dated June 5,2008, for the make-or-buy decision. b.On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? Explain.
Explanation / Answer
Solution :
a. Differential analysis
direct material
25
direct labour
32
factory overhead
8
manufacturing cost per unit
65
purchase cost per unit
68
savings per unit if manufactured
3
b. It is better to manufacture as it saves $ 3 per unit
a. Differential analysis
direct material
25
direct labour
32
factory overhead
8
manufacturing cost per unit
65
purchase cost per unit
68
savings per unit if manufactured
3
b. It is better to manufacture as it saves $ 3 per unit
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