Ch 24 Make or Buv Scenario (3 points) Eclipse Computer Company has been purchasi
ID: 2593970 • Letter: C
Question
Ch 24 Make or Buv Scenario (3 points) Eclipse Computer Company has been purchasing carrying cases for its portable computers at a delivered cost of $86 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: 1. Direct Materials Direct Labor Factory Overhead (40% of direct labor) Total cost per unit $30 40 -16 $86 If Eclipse Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory costs associated with the cases are expected to be 15% of the direct labor costs. Prepare a differential analysis, dated July 19, 2014, to determine whether the company the first line for you, please fill in the rest. should make (Alternative 1) or buy (Alternative 2) the carrying cases. I have completed Differential Analysis Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2) July 19, 2014 Buy Differential Make Carrying Case Carrying Case Effect on Income (Alternative 1)(Alternative 2) (Alternative 2) Costs: |$ 0.00 | $ -86.00 Purchase Price S -86.00 Income (Loss)Explanation / Answer
Solution - 1:
As there is loss of $10 per carrying case in buy alternative, therefore company should go for make alternative.
Solution – 2:
Unfavorable volume variance means company is not able to sale its budgeted quantity. The reason of volume variance could be
However unexpected increase in the cost of utilities is not a valid reason for sales volume variance.
Solution - 3:
a) Cost per unit = $4,500,000 / 15000 = $300
b) Required return = $18,000,000 * 15% = $2,700,000
Markup per unit = $2,700,000/15000 = $180
c) Selling price = Cost + Markup = $300 + $180 = $480 per unit
Differential Analysis - Making Carry case (alt 1) or Buying Carry Case (Alt2) Particulars Making Carry Case (Alt 1) Buying Carry Case (Alt 2) Differential effect on income (Alternative 2) Costs: Purchase Price $0.00 -$86.00 -$86.00 Direct material -$30.00 $0.00 $30.00 Direct Labor -$40.00 $0.00 $40.00 Variable overhead (15% of Direct labor) -$6.00 $0.00 $6.00 Fixed Overhead (Not relevant for make or buy decesion as same is unavoidable in both scenario) $0.00 $0.00 $0.00 Income / (Loss) -$76.00 -$86.00 -$10.00