Make-or-Buy Decision
Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $61 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 45% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows:
Direct materials | $25 |
Direct labor | 18 |
Factory overhead (45% of direct labor) | 8.1 |
Total cost per unit | $51.1 |
If Somerset 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 April 30 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".
Differential Analysis | |||
Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2) | |||
April 30 | |||
Make Carrying Case (Alternative 1) |
Buy Carrying Case (Alternative 2) |
Differential Effects (Alternative 2) |
|
Unit costs: | |||
Purchase price | $ | $ | $ |
Direct materials | |||
Direct labor | |||
Variable factory overhead | |||
Fixed factory overhead | |||
Total unit costs | $ | $ | $ |
Want to see the full answer?
Check out a sample Q&A here
Related Accounting Q&A
Find answers to questions asked by students like you.
Q: Make-or-Buy Decision Matchless Computer Company has been purchasing carrying cases for its portable…
A: Make or buy DecisionThe make-or-buy decision is the act of making a strategic choice between…
Q: Make-or-Buy Decision Somerset Computer Company has been purchasing carrying cases for its portable…
A: Make or Buy Decision - It is an act of decision for manufacturing a production in house or purchased…
Q: Make-or-Buy Decision Matchless Computer Company has been purchasing carrying cases for its portable…
A: Variable cost means the cost which vary with the level of output and fixed cost means the cost which…
Q: Make-or-Buy Decision Fremont Computer Company has been purchasing carrying cases for its portable…
A: Differential analysis is a management accounting technique. In this, Managers examine the changes in…
Q: Make-or-Buy Decision Somerset Computer Company has been purchasing carrying cases for its portable…
A: Direct materials: It is the basic input required to manufacture the finished products. The raw…
Q: Make-or-Buy Decision Somerset Computer Company has been purchasing carrying cases for its portable…
A: Sometimes company has two alternatives. One is manufacturing the product and other is Purchasing the…
Q: Make-or-Buy Decision Matchless Computer Company has been purchasing carrying cases for its portable…
A: Alternative with highest net income would be accepted.
Q: Make-or-Buy Decision Fremont Computer Company has been purchasing carrying cases for its portable…
A: DIFFERENTIAL ANALYSIS PARTICULARS MAKE CARRYING CASE (ALTERNATIVE 1 ) BUY CARRYING CASE…
Q: Make-or-Buy Decision Somerset Computer Company has been purchasing carrying cases for its portable…
A: Differential Analysis: Differential analysis refers to the analysis of differential revenue which a…
Q: Make-or-Buy Decision Somerset Computer Company has been purchasing carrying cases for its portable…
A: Click to see the answer
Q: Make-or-Buy Decision Companion Computer Company has been purchasing carrying cases for its portable…
A: Under Differential Analysis, Differential effects of revenues and costs on Net Income is computed…
Q: Make-or-Buy Decision Fremont Computer Company has been purchasing carrying cases for its portable…
A: a. Prepare a differential analysis dated September 30 to determine whether the company should make…
Q: Make-or-Buy Decision Companion Computer Company has been purchasing carrying cases for its portable…
A: A ) Differential Analysis:
Q: Make-or-Buy Decision Companion Computer Company has been purchasing carrying cases for its portable…
A: The decision of make or buy is defined as the act of using the cost- benefit in order to make the…
Q: Make-or-Buy Decision Matchless Technologies Company has been purchasing carrying cases for its…
A: A) Differential analysis report of manufacturing carrying case:…
Q: Show Me How Calculator Print Item Make-or-Buy Decision Somerset Computer Company has been purchasing…
A: Differential Analysis: Differential analysis refers to the analysis of differential revenue which a…
Q: Special Order Smooth Move Company manufactures professional paperweights and has been approached by…
A: To determine whether to Produce 15,000 units for the special order, consider only the following…
Q: Special-Order Decision Smooth Move Company manufactures professional paperweights and has been…
A: 1. Outline the alternatives available for SM Company: SM company normally produces the paper weights…
Q: Target Costing Instant Image Inc. manufactures color laser printers. Model J20 presently sells for…
A: Calculation of historical markup on selling price = ($460 - $230) x 100 / $460 = 100%
Q: Target Costing Instant Image Inc. manufactures color laser printers. Model J20 presently sells for…
A: Product pricing: Product pricing is the method used for fixing the price for the products sold or…
Q: e. Make vs. Buy (Sourcing Decision) Eggers Company needs 20,000 units of a part to use inproducing…
A: Make vs. Buy decision: It can be defined as the action of making a rational choice between the…
Q: Make-or-Buy Decision Zion Manufacturing had always made its components in-house. However, Bryce…
A: 1. As per the question, either Zion manufacturing makes components of K2 in-house or can purchase it…
Q: The estimated costs of producing 6,000 units of a component are: Per Unit Direct Material Direct…
A: Being a production manager we should compare both of the options on a cost basis. We should go with…
Q: 4. Fremont Computer Company has been purchasing carrying cases for its portable computers at a…
A: a. Differential Analysis Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2) September…
Q: Target Costing Laser Impressions Inc. manufactures color laser printers. Model J20 presently sells…
A: Existing Product cost = $ 240 per unit Existing selling price = $ 300 per unit
Q: Target Costing Laser Impressions Inc. manufactures color laser printers. Model J20 presently sells…
A: Target costing is a method of costing in which costs are estimated and targeted on the basis of…
Q: Special-Order Decision Rianne Company produces a light fixture with the following unit cost:…
A: At the time of considering the special order at the lowest price than charged in the market, the…
Q: Target Costing Laser Impressions Inc. manufactures color laser printers. Model 320 presently sells…
A: Target costing refers to the concept which computes the cost of a product's life-cycle which is…
Q: Head-First Company plans to sell 5,180 bicycle helmets at $72 each in the coming year. Unit variable…
A: Formula: Margin of safety units = Budgeted sales units - Break even sales units. Margin of safety in…
Q: Excellent Manufacturers Inc. has a current production level of 20,000 units per month. Unit costs…
A: Relevant costing : Relevant cost refers to the incremental and avoidable cost of implementing a…
Q: Laser Cast Inc. manufactures color laser printers. Model J20 presently sells for $575 and has a…
A: 1. Calculate the target cost for Model J20.
Q: Make or Buy Decision: Zee-Drive Ltd. is a computer manufacturer. One of the items they make is…
A: Purchase price of 18,000 monitors (19,000*$211) $ 4,009,000 Differential cost to make…
Q: Landor Appliance Corporation makes and sells electric fans. Each fan regularly sells for $36. The…
A: Variable manufacturing overhead = total manufacturing overhead x 25% = $8 x 25% = $2 per unit
Q: Target Costing Laser Impressions Inc. manufactures color laser printers. Model J20 presently sells…
A: Part a: Markup on Product cost =Selling price-cost pricecost pricex100=$325-$260$260×100=25% Hence,…
Q: Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Unit variable…
A: Break-even analysis is a technique widely used by the production department. It helps to determine…
Q: Danube Inc. make and sell bookshelves. For each bookshelf, direct materials cost £15, direct labour…
A: Fixed cost=Expected units×Fixed costs=15,000×£7=£105,000
Q: Head-First Company plans to sell 4,950 bicycle helmets at $72 each in the coming year. Unit variable…
A: Margin of Safety = Total Sales - Breakeven Sales
Q: Target Costing Laser Cast Inc. manufactures color laser printers. Model J20 presently sells for $150…
A: a) Markup on Product cost = (sell price-cost)/cost = (150-120)/120 = 25.00% Hence Target cost = sell…
Q: Edwards & co manaufactures teddy bears. The company's bears are in demand all year round and in the…
A: “Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…
Q: Sky High Seats manufactures seats for airplanes. The company has the capacity to produce 100,000…
A: Affect on operating income shall be seen by analyzing if the special order will either generate…
Q: Mainstay Auto uses a standard part in the manufacture of several of its trucks. The cost of…
A: Change in Income = Old Cost - New Cost
Q: Head-First Company plans to sell 4,400 bicycle helmets at $84 each in the coming year. Unit variable…
A: Break-even units = Fixed cost/Contribution per unit Contribution per unit = Selling price per unit -…
Q: Baker’s Choice Manufacturing manufactures two products: Rolling Pin and Baking Tray. Contribution…
A: In case of limited resources, product which has maximum contribution margin per unit of that scarce…
Q: Innovative designs manufacture wooden crates. Following is the cost related to company: Wood used in…
A: Manufacturing cost of a product include the cost which are involved in the production process. Some…
Q: Margin of Safety Comer Company produces and sells strings of colorful indoor/outdoor lights for…
A: Note: Since we are entitled to answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit…
Q: Value engineering, target pricing, and target costs. Westerly Cosmetics manufactures and sells a…
A: Requirement 1:Determine the target cost of producing 400,000 units.
Q: Homewood Furniture manufactures a small table and a large table. The small table sells for $1,000,…
A: This question deals with the calculation of contribution margin per direct labor hour. For…
Q: Total and unit cost, decision making. Gayle’s Glassworks makes glass flanges for scientific use.…
A: Requirement 1:
Q: IKIT company produces and sells recliner chairs. IKIT uses an absorption product costing system,…
A: Cost plus pricing is a pricing technique in which some profit or markup is added to total costs in…
Q: Margin of Safety Comer Company produces and sells strings of colorful indoor/outdoor lights for…
A: Note: Since we are entitled to answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit…