ing cases for its portable computers at a purchase price of $40 per unit. The co

Question

ing cases for its portable computers at a purchase price of $40 per unit. The company, which is currently Fremont Computer Company has been purchasing carry operating below f capacity charges factory overhead to production at the rate of 25% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials Direct labor Factory overhead (25% of direct labor) Total cost per unit $16 $41 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 5% 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 an amount is zero, enter zero "O". If required, round your answers to two decimal places. Use a minus sign to indicate a loss Differential Analysis Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2) September 30 Sales price Unit costs: Purchase price

Explanation / Answer

a). Solution :-

* Sales Price is not Given in Qunestion.

b). assuming there were no better alternative uses for the spare Capacity, it would advisable to manufacture the

carrying case. Fixed Factory overhead is irrelevant in this Decision.

Particulars Make Carrying Case Buy Carrying Case Differantial Effect on Income Sales Price Cost :- Purchase Price $40 Per unit ($40) Direct Materials $16 per unit $16 Direct Labor $20 per unit $20 Variable Factory Overhead $1 per unit $1 Fixed Factory Overhead $5 per unit $5 per unit Income/(Loss) $42 per unit $45 per unit ($3)

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