Question S of 7 Check My Work 25-7 Edipse Computer Company has been purchasing c

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Question S of 7 Check My Work 25-7 Edipse Computer Company has been purchasing carrying cases for its portable computers at a delivered charges factory overhead to production at the rate of 40% of direct labor cost. The fuly absorbed unit costs to produce comparable am ng cases are expected to be as follow s per unit. The company, which is currently operating below full capacity Direct materials Direct labor Factory overhead 40% of direct labor) Total cost per unit If Edlipse Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory 15% of the direct labor costs overhead costs associated with the cases are expected to be a. Prepare a differential analysis, dated July 19, 2014, to determine whether the company should make (Alternative 1) or buy (Aiternative 2) the carrying case. If an amount is zero, enter Make Carrying Case (AIt.1) or Buy Carrying Case (Art. 2)

Explanation / Answer

A. Differential Analysis:-  

Decision:-

Eclipse Company should make carrying cases. Opting alternative 1 company will get incremental income of $6.25.

B. Assuming there were no better alternative uses for the spare capacity, it would beneficial to manufacture the carrying cases. Fixed factory overhead is irrelevant to this case.

Make Carrying Cases Buy Carrying Cases Differential Effect on income Cost $ $ $ $ Purchase Price per unit 0 65 65 Direct Material Per Unit 30 0 (30) Direct Labor Per Unit 25 0 (25) Variable Factory Overhead Per Unit 3.75 0 (3.75) Fixed Factory Overhead per unit 10 10 0 Income $68.75 $ 75 $6.25

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