Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $59 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 unit costs to produce comparable carrying cases are expected to be as follows:Direct materials$25Direct labor16Factory overhead (42% of direct labor)6.72Total cost per unit$47.72If 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 AnalysisMake Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2)April 30 MakeCarryingCase(Alternative 1)BuyCarryingCase(Alternative 2)DifferentialEffects(Alternative 2)Unit costs:   Purchase price$$$Direct materials   Direct labor   Variable factory overhead   Fixed factory overhead   Total unit costs$$$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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Asked Dec 1, 2019
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Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $59 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 unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials $25
Direct labor 16
Factory overhead (42% of direct labor) 6.72
Total cost per unit $47.72

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 $ $ $

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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Expert Answer

Step 1

Differential analysis: Differential analysis refers to the analysis of differential revenue that could be gained or differential cost that can be incurred from the available alternative options of business by leaving out irrelevant information.

 

Step 2

a.

Prepare a differential analysis dated April 30 to determine whether the co...

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Buy canyingDifferent effects Make canying Particulars case in S case in S (Altemative 2) (Alternativel) (Altemative 2) Unit cost Purchase price Direct materials Direct labor Variable factory Overhead Fixed factory Overhead Total unit cost 59.00 59.00 0.00 25.00 16.00 0.00 25.00 16.00 0.00 1.92 0.00 1.92 3.23 46.15 323 62.23 0 16.08

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