CengageNoWv2 | Online teaching and learning resource from Cengage Learning 2018S

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CengageNoWv2 | Online teaching and learning resource from Cengage Learning 2018SP-Reeder-OL (Jan to May): Link to Cengage ??? Show Me How eBook Calculator Make or Buy A company manufactures various-sized plastic bottles for its medicinal producet. The manufacturing cost for small bottles is $75 per unit (100 bottles), including fixed costs of $28 per unit. A proposal is offered to purchase small bottles from an outside source for $40 per unit, plus $4 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 (AIt. 2) Make Bottles (Alternative 1) Buy Bottles (Alternative 2) Differential Effect on Income (Alternative 2) Saies price Uhit costs: Purchase price Freight Variable costs 40 Fbxed factory overhead Income (Loss) My Work Check My Work PreviousNext All work saved

Explanation / Answer

Ans)

It is better to buy the bottles as it involves less cost than making

Make Bottles Buy bottles Differential effect on income Sales price 0 0 0 Unit costs Purchase price 0 40 (40) Freight 0 4 (4) Variable costs(75 - 28) 47 0 47 Fixed factory overhead 28 28 0 Income (Loss) 75 72 3

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