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Reference no: EM13608435

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Companion Computer Company has been purchasing carrying cases for its portable computers at a delivered cost of $68 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 40% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows:

If Companion 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 15% of the direct labor costs.

a. Prepare a differential analysis report, dated October 11, 2010, for the make-or-buy decision. Enter amounts to the nearest cent, if required.

Proposal to Manufacture Carrying Case
October 11, 2010

Purchase price of carrying case _____________
Differential cost to manufacture carrying case: ______________
Direct materials ___________
Direct labor ___________
Variable factory overhead
Cost savings from manufacturing carrying case _______________

b. On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? Explain.

Reference no: EM13608435

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