Companion Computer Company has been purchasing carrying cases for its portable computers at a delivered cost of $68 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 …………………..........……..……. $25.00

Direct labor ………………………………...............….. 32.00

Factory overhead (40% of direct labor) ……… 12.80

Total cost per unit …………………….........……… $69.80

If Companion 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 report, dated October 11, 2010, for the makeor-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.