Make or Buy A company manufactures various-sized plastic bottles for its medicin
ID: 2400452 • Letter: M
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), indluding fixed costs of $34 per unit. A proposal is offered to purchase small bottles from an outside source for $100 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. Differential Analysis Make Bottles (Alt. 1) or Buy Bottles (Alt. 2) uly 31 Make Bottles (Alternative 1) Buy Bottles (Alternative 2) Differential Effect on Income (Alternative 2) Sales price Unit costs: Purchase price Freight Variable costs Fxed factory overhead Income (Loss) should make (Alternative 1) or buy (Alternative 2) the bottles. Make the bottles Buy the bottles Previous Next e Remaining: 2:50-40 All work saved Email Instructor Submit Test for Grading Type here to search ?? ·Explanation / Answer
Answer a)
Differential Analysis
Make Bottle (Alt 1) Buy Bottle (Alt 2)
.July 31
Make Bottle (Alt. 1)
Buy Bottle (Alt. 2)
Differential Effect on Income
Sales Price
$ 200.00
$ 200.00
$ 0.00
Unit Cost
Purchase Price
$ 0.00
$ 100.00
$ (100.00)
Freight
$ 0.00
$ 12.00
$ (12.00)
Variable Cost
$ 118.00
$ 0.00
$ 118.00
Fixed Factory Overheads
$ 34.00
$ 34.00
$ 0.00
Income (loss)
$ 48.00
$ 54.00
$ 6.00
Notes
Answer b)
The Company should Buy the Bottles because the cost on Buying is lower than in Making the Bottle.
Select Alternate
Buy the Bottles
Differential Analysis
Make Bottle (Alt 1) Buy Bottle (Alt 2)
.July 31
Make Bottle (Alt. 1)
Buy Bottle (Alt. 2)
Differential Effect on Income
Sales Price
$ 200.00
$ 200.00
$ 0.00
Unit Cost
Purchase Price
$ 0.00
$ 100.00
$ (100.00)
Freight
$ 0.00
$ 12.00
$ (12.00)
Variable Cost
$ 118.00
$ 0.00
$ 118.00
Fixed Factory Overheads
$ 34.00
$ 34.00
$ 0.00
Income (loss)
$ 48.00
$ 54.00
$ 6.00
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