Matchless Computer Company has been purchasing carrying cases for its portable c

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 45% 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 13% of the direct labor costs.

a. Prepare a differential analysis, dated October 11, 2014, 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".

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)

$  

$  

$  

Direct materials $29.00 Direct labor 19.00 Factory overhead (45% of direct labor) 8.55 Total cost per unit $56.55

Explanation / Answer

Make Carrying Case (Alternative 1) Buy Carrying Case (Alternative 2) Differential Effect on Income (Alternative 2) Costs: 59.02 55 -4.02 Purchase price 55 55 $   Direct materials per unit 29       Direct labor per unit 19       Variable factory overhead per unit 2.47       Fixed factory overhead per unit 8.55       Income (Loss) 4.02 $   4.02

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