Fremont Computer Company has been purchasing carrying cases for its portable com
ID: 2430473 • Letter: F
Question
Fremont Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $58 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 unit costs to produce comparable carrying cases are expected to be as follows:
If Fremont 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 12% of the direct labor costs.
a. Prepare a differential analysis dated September 30 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 "0". Use a minus sign to indicate a loss.
b. Assuming there were no better alternative uses for the spare capacity, it would to manufacture the carrying cases. Fixed factory overhead is to this decision.
Direct materials $26 Direct labor 18 Factory overhead (45% of direct labor) 8.1 Total cost per unit $52.1Explanation / Answer
Differential Analysis: Make Buy Differential Effect Sales price 0 0 0 Unit cost: Purchase price 0 58 -58 Direct Material 26 0 26 Labbour 18 0 18 Variable Factory OH 2.16 0 2.16 Fixed Factory OH 5.94 5.94 0 Income/(Loss) -52.1 -63.94 -11.84 The Firm shall: Manufacture the Cases
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