izana Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $58 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 37% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Line Item Description Amount Direct materials $30.00 Direct labor 17.00 Factory overhead (37% of direct labor) 6.29 Total cost per unit $53.29 If Pizana 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. Question Content Area a.  Prepare a differential analysis dated May 31 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. Round your answers to two decimal places. If an amount is zero, enter "0". Differential AnalysisMake (Alt. 1) or Buy (Alt. 2) Carrying CaseMay 31 Line Item Description Make Carrying Case (Alternative 1) Buy Carrying Case (Alternative 2) Differential Effects (Alternative 2) Unit costs:       Purchase price $Purchase price $Purchase price $Purchase price Direct materials Direct materials Direct materials Direct materials Direct labor Direct labor Direct labor Direct labor Variable factory overhead Variable factory overhead Variable factory overhead Variable factory overhead Fixed factory overhead Fixed factory overhead Fixed factory overhead Fixed factory overhead Total unit costs $Total unit costs $Total unit costs $Total unit costs

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Make-or-Buy Decision

Pizana Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $58 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 37% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows:

Line Item Description Amount
Direct materials $30.00
Direct labor 17.00
Factory overhead (37% of direct labor) 6.29
Total cost per unit $53.29

If Pizana 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.

Question Content Area

a.  Prepare a differential analysis dated May 31 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. Round your answers to two decimal places. If an amount is zero, enter "0".

Differential AnalysisMake (Alt. 1) or Buy (Alt. 2) Carrying CaseMay 31
Line Item Description Make Carrying Case
(Alternative 1)
Buy Carrying Case
(Alternative 2)
Differential Effects
(Alternative 2)
Unit costs:      
Purchase price $Purchase price $Purchase price $Purchase price
Direct materials Direct materials Direct materials Direct materials
Direct labor Direct labor Direct labor Direct labor
Variable factory overhead Variable factory overhead Variable factory overhead Variable factory overhead
Fixed factory overhead Fixed factory overhead Fixed factory overhead Fixed factory overhead
Total unit costs $Total unit costs $Total unit costs $Total unit costs
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