Question 1 chapter 24

question 2

Make-or-Buy Decision Fremont Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $57 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 42% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $25 Direct labor 20 Factory overhead (42% of direct labor) Total cost per unit If Fremont 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 12% of the direct labor costs. a. Prepare a differential analysis dated September 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If required, round your answers to two decimal places. If an amount is zero, enter "o". Use a minus sign to indicate a loss. Differential Analysis Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2) September 30 Make Carrying Case (Alternative 1) Buy Carrying Case (Alternative 2) Differential Effect on Income (Alternative 2) Sales price 0 0 0 Unit costs: Purchase price 57 Direct materials 25 Direct labor 20 20 Variable factory overhead 2.40 Fixed factory overhead 18.40 X $ 55.80 x 57.00 X Income (Loss) 57 Decision on Accepting Additional Business Homestead Jeans Co. has an annual plant capacity of 65,100 units, and current production is 45,800 units. Monthly fixed costs are $38,400, and variable costs are $25 per unit. The present selling price is $37 per unit. On November 12 of the current year, the company received an offer from Dawkins Company for 13,600 units of the product at $26 each. Dawkins Company will market the units in a foreign country under its own brand name. The additional business is not expected to affect the domestic selling price or quantity of sales of Homestead Jeans Co. a. Prepare a differential analysis dated November 12 on whether to reject (Alternative 1) or accept (Alternative 2) the Dawkins order. If an amount is zero, enter "o". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) November 12 Reject Order (Alternative 1) Accept Order (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $ 353,600 Costs: Variable manufacturing costs 340,000 Income (Loss) 13,600 S Feedback Check My Work Subtract the additional costs from the additional revenues for accepting the order. Learning Objective 1. b. Having unused capacity available is relevant to this decision. The differential revenue is more than the differential cost. Thus, accepting this additional business will result in a net gain . c. What is the minimum price per unit that would produce a positive contribution margin? Round your answer to two decimal places