Advent Computer Company has been purchasing carrying cases for its portable computers at a delivered cost of

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Advent Computer Company has been purchasing carrying cases for its portable computers at a delivered cost of $51 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:

Direct materials ................$20.00

Direct labor ................. 24.00

Factory overhead (40% of direct labor) ...... 9.60

Total cost per unit ...............$53.60

If Advent 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 25% of the direct labor costs.

a. Prepare a differential analysis report, dated June 5, 2006, for the make-or-buy decision.

b. On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? Explain.


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Accounting

ISBN: 978-0324188004

21st Edition

Authors: Carl s. warren, James m. reeve, Philip e. fess

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