Matchless Computer Company has been purchasing carrying cases for its portable c
ID: 2344460 • Letter: M
Question
Matchless Computer Company has been purchasing carrying cases for its portable computers at a delivered cost of $55 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 40% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows:
If Matchless 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 15% of the direct labor costs.
(I get stuck at variable factory and fixed factory overhead)
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) $ $ $
Explanation / Answer
IF MAKE: variable factory overhead per unit when making=20*15%=3 Fixed factory overhead per unit when making=8-3=5 MAKE COST PER UNIT=20+28+3+5=56 IF BUY: variable factory overhead when buying =0 Fixed factory overhead when buying=5(since given that fixed overhead remains same) BUY COST PER UNIT=55+5=60 IT IS PREFERRED TO MAKE CARRYING CASES