Make-or-Buy Decision
Matchless Computer Company has been purchasing carrying casesfor its portable computers at a delivered cost of $62 per unit. Thecompany, which is currently operating below full capacity, chargesfactory overhead to production at the rate of 38% of direct laborcost. The fully absorbed unit costs to produce comparable carryingcases are expected to be as follows:
Direct materials $28.00 Direct labor 22.00 Factory overhead (38% of directlabor) 8.36 Total cost per unit $58.36
If Matchless Computer Company manufactures the carrying cases,fixed factory overhead costs will not increase and variable factoryoverhead costs associated with the cases are expected to be 16% ofthe direct labor costs.
a. Prepare a differential analysis, datedOctober 11, 2014, to determine whether the company should make(Alternative 1) or buy (Alternative 2) the carrying case. Ifrequired, round your answers to two decimal places. If an amount iszero, enter zero "0".
Differential Analysis
Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2)
October 11, 2014
Make Carrying Case (Alternative 1)
Buy Carrying Case (Alternative 2)
Differential Effect on Income (Alternative 2)
Costs:
Purchase price
$
$
$
Direct materials per unit
Direct labor per unit
Variable factory overhead per unit
Fixed factory overhead per unit
Income (Loss)
$
$
$
Make-or-Buy Decision
Matchless Computer Company has been purchasing carrying casesfor its portable computers at a delivered cost of $62 per unit. Thecompany, which is currently operating below full capacity, chargesfactory overhead to production at the rate of 38% of direct laborcost. The fully absorbed unit costs to produce comparable carryingcases are expected to be as follows:
| Direct materials | $28.00 |
| Direct labor | 22.00 |
| Factory overhead (38% of directlabor) | 8.36 |
| Total cost per unit | $58.36 |
If Matchless Computer Company manufactures the carrying cases,fixed factory overhead costs will not increase and variable factoryoverhead costs associated with the cases are expected to be 16% ofthe direct labor costs.
| a. Prepare a differential analysis, datedOctober 11, 2014, to determine whether the company should make(Alternative 1) or buy (Alternative 2) the carrying case. Ifrequired, round your answers to two decimal places. If an amount iszero, enter zero "0".
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Related questions
Jupiter Computer Company has been purchasing carrying cases forits portable computers at a purchase price of $78 per unit. Thecompany, which is currently operating below full capacity, chargesfactory overhead to production at the rate of 40% of direct laborcost. The fully absorbed unit costs to produce comparable carryingcases are expected to be as follows:
| Direct materials | $52 |
| Direct labor | 20 |
| Factory overhead (40% of direct labor) | 8 |
| Total cost per unit | $80 |
If Jupiter Computer Company manufactures the carrying cases,fixed factory overhead costs will not increase and variable factoryoverhead costs associated with the cases are expected to be 10% ofthe direct labor costs.
| Required: | |
| A. | Prepare a differentialanalysis, dated July 19 to determine whether the company shouldmake (Alternative 1) or buy (Alternative 2) the carrying case.Refer to the lists of Labels and Amount Descriptions for the exactwording of the answer choices for text entries. For those boxes inwhich you must enter subtracted or negative numbers use a minussign. If there is no amount or an amount is zero, enter "0". Acolon (:) will automatically appear if required. |
| B. | On the basis of the datapresented, would it be advisable to make the carrying cases or tocontinue buying them? Explain. |
Differential Analysis
Shaded cells have feedback.
A. Prepare a differential analysis, dated July 19 to determinewhether the company should make (Alternative 1) or buy (Alternative2) the carrying case. Refer to the lists of Labels and AmountDescriptions for the exact wording of the answer choices for textentries. For those boxes in which you must enter subtracted ornegative numbers use a minus sign. If there is no amount or anamount is zero, enter "0". A colon (:) will automatically appear ifrequired.
Score: 82/107
Differential Analysis |
Make Carrying Case (Alternative 1) or Buy Carrying Case(Alternative 2) |
July 19 |
1 | Make Carrying Case | Buy Carrying Case | Differential Effect on Income | |
2 | (Alternative 1) | (Alternative 2) | (Alternative 2) | |
3 | â | |||
4 | â | â | ||
5 | â | â | â | |
6 | â | â | â | |
7 | â | â | â | |
8 | â | â | â | â |
9 | â | â |
Points:
19.16 / 25
Feedback
Check My Work
A. For the make and buy alternatives provide the unit costs. Usepercentage to separate variable and fixed costs. Determine thedifferential effect on income of the revenues, costs, and income(loss) by subtracting alternative 1 from alternative 2.
Final Question
Shaded cells have feedback.
B. On the basis of the data presented, would it be advisable tomake the carrying cases or to continue buying them? Explain.
Assuming there were no better alternative uses for the sparecapacity, it wouldbe advisable to manufacture thecarrying cases because the cost savings would be $4 per unit. Fixedfactory overhead isirrelevant because it willcontinue whether the carrying cases are purchased ormanufactured.
Points:
2 / 2
Feedback
Check My Work
B. Which alternative has the most desirable effect onincome?
