Make-or-Buy Decision Matchless Technologies Company has been purchasing carrying

Question

Make-or-Buy Decision

Matchless Technologies Company has been purchasing carrying cases for its portable tablets at a delivered cost of $60 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 42% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows:

If Matchless Technologies 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 15% of the direct labor costs.

Prepare a The area of accounting concerned with the effect of alternative courses of action on revenues and costs.differential analysis report for the make-or-buy decision. Enter your final answer as a positive amount if it represents a net cost savings; enter a negative amount if it represents an increase in cost.

Differential Analysis Report

Purchase price of carrying case

Differential cost to manufacture carrying case:

Direct materials

Direct labor

Variable factory overhead

Cost savings from manufacturing carrying case

Direct materials $29.00 Direct labor 16.00 Factory overhead (42% of direct labor) 6.72 Total cost per unit $51.72

Explanation / Answer

Purchase price of carrying case 60 Differential cost to manufacture carrying case: Direct materials 29 Direct labor 16 Variable factory overhead 2.4 =16*15% Cost savings from manufacturing carrying case 12.6

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