Exercises & problems - chapter 25(secondpart)

****Matchless Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $55 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 46% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials	$30
Direct labor	22
Factory overhead (46% of direct labor)	10.12
Total cost per unit	$62.12

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 12% 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.

****A company is considering replacing an old piece of machinery, which cost $598,900 and has $352,500 of accumulated depreciation to date, with a new machine that has a purchase price of $486,000. The old machine could be sold for $63,100. The annual variable production costs associated with the old machine are estimated to be $159,000 per year for eight years. The annual variable production costs for the new machine are estimated to be $98,500 per year for eight years.

a. Prepare a differential analysis dated April 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

b. What is the sunk cost in this situation? The sunk cost is $______

Differential Analysis Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2) February 24 Make Carrying Buy Carrying Differential Effect Case (Alternative 1) Case (Alternative 2) on Income (Alternative 2) Sales Price Costs: Purchase price Direct materials per unit Direct labor per unit Variable factory overhead per unit Fixed factory overhead per unit Income (Loss) $ $ Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) April 29 Continue Replace Differential with Old old Effect Machine Machine on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues: Proceeds from sale of old machine Costs: Purchase price Variable productions costs (8 years) Income (Loss)