Make-or-Buy Decision Companion Computer Company has been purchasing carrying cas

Question

Make-or-Buy Decision

Companion Computer Company has been purchasing carrying cases for its portable computers 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 41% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows:

If Companion 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 14% of the direct labor costs.

a. Prepare a differential analysis, dated October 11, 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 zero "0".

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.

Explanation / Answer

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. Question-2a Make Carrying Case Buy Carrying Case Differential Effect Purchase Price -60 -60 Direct Material -29 29 Direct Labor -20 20 Variable Overhead (20*14%) -2.8 2.8 Fixed Overhead 20*(41-14)% -5.4 -5.4 0 Income/(Loss) -57.2 -65.4 -8.2 Question-2b Should make the cases as cost is lower by $8.2

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