Answered: Diamond Computer Company has been…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 7E: Make-or-buy decision Somerset Computer Company has been purchasing carrying cases for its portable...

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Make-or-Buy Decision

Diamond 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 40% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials	$35.00
Direct labor	18.00
Factory overhead (40% of direct labor)	7.20
Total cost per unit	$60.20

If Diamond 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 15% 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 an amount is zero, enter "0". If required, round your answers to two decimal places. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

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