Prepare a differential analysis dated February

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Problem - Matchless Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $62 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 43% of direct labor cost. The total unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials

$28.00

Direct labor

19.00

Factory overhead (43% of direct labor)

8.17

Total cost per unit

$55.17

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 14% 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.

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.

Reference no: EM133034868

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