Make or Buy A company manufactures various-sized plastic bottles for its medicin

Question

Make or Buy

A company manufactures various-sized plastic bottles for its medicinal product. The manufacturing cost for small bottles is $152 per unit (100 bottles), including fixed costs of $32 per unit. A proposal is offered to purchase small bottles from an outside source for $104 per unit, plus $12 per unit for freight.

a. Prepare a differential analysis dated July 31 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the bottles, assuming fixed costs are unaffected by the decision. If an amount is zero, enter "0". Use a minus sign to indicate a loss.

b. Determine whether the company should make (Alternative 1) or buy (Alternative 2) the bottles.

Differential Analysis Make Bottles (Alt. 1) or Buy Bottles (Alt. 2) July 31 Make Bottles (Alternative 1) Buy Bottles (Alternative 2) Differential Effect on Income (Alternative 2) Sales price $ $ $ Unit costs: Purchase price $ $ $ Freight Variable costs Fixed factory overhead Income (Loss) $ $ $

Explanation / Answer

Make Buy Differential effect bottles Bottles on income Alt 1 Alt 2 unit costs: purchase price 104 -104 Freight 12 -12 Variable cost 120 120 Fixed factory overhead 32 32 0 income (loss) 152 148 4 Buy the Bottles

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