Make-or-Buy DecisionMatchless Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $60 per unit. The company, which is currently operatingbelow full capacity, charges factory overhead to production at the rate of 43% of direct labor cost. The fullly absorbed unit costs to produce comparable carrying cases areexpected to be as follows:Direct materials$29Direct labor22Factory overhead (43 % of direct labor)9.46Total cost per unit$60.46If Matchless Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with thecases are expected to be 12% of the direct labor costs.a. Prepare a differential analysis dated February 24 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". For those boxes in which you must enter subtracted or negative numbers use a minus sign.Differential AnalysisMake Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2)February 24Make CarryingDifferential EffectBuy CarryingCase (Alternative 1) Case (Alternative 2) on Income (Alternative 2)Sales PriceCosts:Purchase priceDirect materials per unitDirect labor per unitVariable factory overhead per unitFixed factory overhead per unit be advisableIncome (Loss)not be advisableb. Assuming there were no better alternative uses for the spare capacity, it wouldto manufacture the carrying cases. Fixed factory overhead isto this decision.

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Asked Nov 5, 2019
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Make-or-Buy Decision
Matchless Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $60 per unit. The company, which is currently operating
below full capacity, charges factory overhead to production at the rate of 43% of direct labor cost. The fullly absorbed unit costs to produce comparable carrying cases are
expected to be as follows:
Direct materials
$29
Direct labor
22
Factory overhead (43 % of direct labor)
9.46
Total cost per unit
$60.46
If Matchless 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 February 24 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". For those boxes in which you must enter subtracted or negative numbers use a minus sign.
Differential Analysis
Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2)
February 24
Make Carrying
Differential Effect
Buy Carrying
Case (Alternative 1) Case (Alternative 2) on Income (Alternative 2)
Sales Price
Costs:
Purchase price
Direct materials per unit
Direct labor per unit
Variable factory overhead per unit
Fixed factory overhead per unit
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Make-or-Buy Decision Matchless Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $60 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 43% of direct labor cost. The fullly absorbed unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $29 Direct labor 22 Factory overhead (43 % of direct labor) 9.46 Total cost per unit $60.46 If Matchless 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 February 24 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". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2) February 24 Make Carrying Differential Effect Buy Carrying Case (Alternative 1) Case (Alternative 2) on Income (Alternative 2) Sales Price Costs: Purchase price Direct materials per unit Direct labor per unit Variable factory overhead per unit Fixed factory overhead per unit

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be advisable
Income (Loss)
not be advisable
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.
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be advisable Income (Loss) not be advisable 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.

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Step 1

Make or buy Decision

The make-or-buy decision is the act of making a strategic choice between producing an item internally or buying it externally. The buy side of the decision also referred to as outsourcing. Make-or-buy decision usually arise when a firm that has developed a product or part-or significantly modified a product or part- is having trouble with the current suppliers.

Step 2

A. The differential analysis should be prep...

Make carrying
Buy carrying
Cases
Differential
Effect on income
cases
(Alternative 1)
(Alternative 2)
of Alternative 2
Cost:
Purchase price
Direct Material per unit
Direct Labor per unit
Variable factory overhead per unit
Fixed factory overhead per unit
Income (Loss)
$60
($60)
$29
$22
$2.64
$29
$22
$2.64
$5.39
$5.39
$59.03
$65.39
(S6.36)
Note: 1
(Variable factory overhead per unit
Direct lobor cost per unit x 12%
When carrying cases are manufactured
$22 x 12%
$2.64
Note: 2
Fixed factory overhead per unit $9.46 x (100 - 43%)
=$5.39
Fixed factory overhead when carrying cases are manufactured or when the carrying cases are
brought will remain unchanged that is $5.30
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Make carrying Buy carrying Cases Differential Effect on income cases (Alternative 1) (Alternative 2) of Alternative 2 Cost: Purchase price Direct Material per unit Direct Labor per unit Variable factory overhead per unit Fixed factory overhead per unit Income (Loss) $60 ($60) $29 $22 $2.64 $29 $22 $2.64 $5.39 $5.39 $59.03 $65.39 (S6.36) Note: 1 (Variable factory overhead per unit Direct lobor cost per unit x 12% When carrying cases are manufactured $22 x 12% $2.64 Note: 2 Fixed factory overhead per unit $9.46 x (100 - 43%) =$5.39 Fixed factory overhead when carrying cases are manufactured or when the carrying cases are brought will remain unchanged that is $5.30

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