Make$-$or$-$buy decision

Pizana Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $$59$ per unit. The company, which is currently

operating below full capacity, charges factory overhead to production at the rate of $41\%$ of direct labor cost. The unit costs to produce comparable carrying cases

are expected to be as follows:

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 $13\%$ of the direct labor costs.

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 Analysis

Make $($Alt$.1)$ or Buy $($Alt$.2)$ Carrying Case

May $31$

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a$.$ For the make and buy alternatives provide the unit costs. Use percentage to separate variable and fixed costs. Determine the differential effect on

income of the revenues, costs, and income $($loss$)$ by subtracting alternative $1$ from alternative $2.$

b$.$ Assuming there were no better alternative uses for the spare capacity, it would

$$ to manufacture the carrying cases. Fixed factory

overhead is i$.$

$$ to this decision.