Make or Buy Decision:

Zee$-$Drive Ltd$.$ is a computer manufacturer. One of the items they make is monitors. Zee$-$Drive has the opportunity to purchase $17,000$ monitors from an outside supplier for $$203$ per unit. One of the company's cost$-$accounting interns prepared the following schedule of Zee$-$Drive's cost to produce $17,000$ monitors:

Total cost of producing $17,000$ monitors

Unit cost

Direct materials $ $1,921,000$ $ $113$

Direct labor $1,207,00071$

Variable factory overhead $612,00036$

Fixed manufacturing overhead $476,00028$

Fixed non$-$manufacturing overhead $663,00039$

$ $4,879,000$ $ $287$

You are asked to look over the intern's estimate before the information is shared with members of management who will decide to continue to make the monitors or buy them. The company's controller believes that the estimate may be incorrect because it includes costs that are not relevant. If Zee$-$Drive buys the monitors, the direct labor force currently employed in producing the monitors will be terminated and there would be no termination costs incurred. There are no materials on hand and no commitments to suppliers to purchase materials, so all materials would need to be purchased to make the monitors. Variable overheads are avoidable if monitors are bought. Fixed manufacturing overhead costs would be reduced by $$60,000,$ but non$-$manufacturing costs would remain the same if monitors are bought.

Fill in the differential analysis.

Make or Buy Decisions

Differential Analysis Report

Purchase price of $17,000$ monitors $fill in the blank $5$f$9$e$85$fc$3053028\_3$

Differential cost to make:

Direct materials $fill in the blank $5$f$9$e$85$fc$3053028\_4$

Direct labor fill in the blank $5$f$9$e$85$fc$3053028\_5$

Overhead fill in the blank $5$f$9$e$85$fc$3053028\_6$ fill in the blank $5$f$9$e$85$fc$3053028\_7$

Differential income $($loss$)$ from making monitorsall examples of common decisions where differential analysis is used.

Many formats may be used. Click here for a template that includes all revenues and costs. Click here for a template with relevant costs only.

Make or Buy Decision:

Zee$-$Drive Ltd$.$ is a computer manufacturer. One of the items they make is monitors. Zee$-$Drive has the opportunity to purchase $17,000$ monitors from an outside

supplier for $$203$ per unit. One of the company's cost$-$accounting interns prepared the following schedule of Zee$-$Drive's cost to produce $17,000$ monitors:

You are asked to look over the intern's estimate before the information is shared with members of management who will decide to continue to make the monitors or

buy them. The company's controller believes that the estimate may be incorrect because it includes costs that are not relevant. If Zee$-$Drive buys the monitors, the

direct labor force currently employed in producing the monitors will be terminated and there would be no termination costs incurred. There are no materials on hand

and no commitments to suppliers to purchase materials, so all materials would need to be purchased to make the monitors. Variable overheads are avoidable if

monitors are bought. Fixed manufacturing overhead costs would be reduced by $$60,000,$ but non$-$manufacturing costs would remain the same if monitors are bought.

Fill in the differential analysis.