FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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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 $58 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 38% of direct labor cost. The fully
absorbed unit costs to produce comparable carrying cases are expected to be as follows:
$27
Direct materials
Direct labor
Factory overhead (38% of direct labor)
Total cost per unit
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 14% 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.
Sales Price
Costs:
18
6.84
$51.84
Differential Analysis
Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2)
February 24
Purchase price
Direct materials per unit
Direct labor per unit
Variable factory overhead per unit
Fixed factory overhead per unit
Income (Loss)
Make Carrying
Buy Carrying
Differential Effect
Case (Alternative 1) Case (Alternative 2) on Income (Alternative 2)
0 ✓
0 ✓
$
0
0
✓
X
X
X
X
X
0
0
0
X
X
X
0
X
X
X
X
✓
X
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Transcribed Image Text:Make-or-Buy Decision Matchless 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 38% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows: $27 Direct materials Direct labor Factory overhead (38% of direct labor) Total cost per unit 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 14% 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. Sales Price Costs: 18 6.84 $51.84 Differential Analysis Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2) February 24 Purchase price Direct materials per unit Direct labor per unit Variable factory overhead per unit Fixed factory overhead per unit Income (Loss) Make Carrying Buy Carrying Differential Effect Case (Alternative 1) Case (Alternative 2) on Income (Alternative 2) 0 ✓ 0 ✓ $ 0 0 ✓ X X X X X 0 0 0 X X X 0 X X X X ✓ X
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