Make-or-Buy Decision

Matchless 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 38% of direct labor cost. The total unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials	$27.00
Direct labor	17.00
Factory overhead (38% of direct labor)	6.46
Total cost per unit	$50.46

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 16% of the direct labor costs.

Question Content Area

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.

	Make Carrying Case (Alternative 1)	Buy Carrying Case (Alternative 2)	Differential Effects (Alternative 2)
Unit costs:
Purchase price
Direct materials per unit
Direct labor per unit
Variable factory overhead per unit
Fixed factory overhead per unit
Total unit costs

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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.