Make-or-Buy Decision Matchless Technologies Company has been purchasing carrying

Question

Make-or-Buy Decision

Matchless Technologies Company has been purchasing carrying cases for its portable tablets at a delivered cost of $60 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 fully absorbed unit costs to produce comparable carrying cases are expected to be as follows:

If Matchless Technologies 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 16% of the direct labor costs.

a. Prepare a differential analysis report for the make-or-buy decision. Enter your final answer as a positive amount if it represents a net cost savings; enter a negative amount if it represents an increase in cost.

Variable factory overhead ?   

(Cost increase) or (cost decrease ? $

b. On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them?
It would be advisable (continue buying or to manufacture) the carrying cases because the (additional costs or the cost saving) would be $ ______ per unit. Fixed factory overhead is (irrelevant or relevant) since it will continue (whether the carrying cases are purchased or manufactured) or (only if the carrying cases are purchased) or (only if the carrying cases are manufactured)

Direct materials $24.00 Direct labor 17.00 Factory overhead (44% of direct labor) 7.48 Total cost per unit $48.48

Explanation / Answer

Ans. It is advisable to amnufacture carrying cases rather buying them as it will have an additional benefit of $16.28 per unit MATCHLESS TECHNOLOGIES COMPANY MANUFACTURE CARRYING CASE Differential analysis Report Purchase price of carrying case 60 $ Differential cost to manufacture carrying case: Direct material 24 Direct labour 17 Variable factory overhead = 17*16% 2.72 Cost to manufacture 43.72 Benefit in manufacture 16.28

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