Make$-$or$-$Buy Decision

Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $$24$ 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 unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials

If Somerset 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 dated April $30$ to determine whether the company should make $($Alternative $1)$ or buy

$($Alternative $2)$ the carrying case. If an amount is zero, enter $"0".$ If required, round your answers to two decimal places.

Differential Analysis

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

April $30$

Make

Carrying

Case

$($Alternative $1)($Alternative $2)$

Unit costs:

Purchase price

Direct materials

Direct labor

Variable factory overhead

Fixed factory overhead

Total unit costs

Buy

Carrying

Case

Differential

Effects

$($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

to this decision.