Make-or-Buy Decision

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 41% of direct labor cost. The total unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials	$24.00
Direct labor	21.00
Factory overhead (41% of direct labor)	8.61
Total cost per unit	$53.61

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 13% of the direct labor costs.

a. Prepare a differential analysis dated February 24 to determine whether the company should Make Carrying Case (Alternative 1) or Buy Carrying Case (Alternative 2). 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.

Differential Analysis Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2) February 24

	Make Carrying Case (Alternative 1)	Buy Carrying Case (Alternative 2)	Differential Effects (Alternative 2)
Unit costs:
Purchase price	$fill in the blank 2bcc4afd101b062_1	$fill in the blank 2bcc4afd101b062_2	$fill in the blank 2bcc4afd101b062_3
Direct materials per unit	fill in the blank 2bcc4afd101b062_4	fill in the blank 2bcc4afd101b062_5	fill in the blank 2bcc4afd101b062_6
Direct labor per unit	fill in the blank 2bcc4afd101b062_7	fill in the blank 2bcc4afd101b062_8	fill in the blank 2bcc4afd101b062_9
Variable factory overhead per unit	fill in the blank 2bcc4afd101b062_10	fill in the blank 2bcc4afd101b062_11	fill in the blank 2bcc4afd101b062_12
Fixed factory overhead per unit	fill in the blank 2bcc4afd101b062_13	fill in the blank 2bcc4afd101b062_14	fill in the blank 2bcc4afd101b062_15
Total unit costs	$fill in the blank 2bcc4afd101b062_16	$fill in the blank 2bcc4afd101b062_17	$fill in the blank 2bcc4afd101b062_18

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

be advisablenot be advisable

to manufacture the carrying cases. Fixed factory overhead is

relevantirrelevant

to this decision.