Question

Jupiter Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $111 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 50% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials	$55
Direct labor	40
Factory overhead (50% of direct labor)	20
Total cost per unit	$115

If Jupiter 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 10% of the direct labor costs.

	Required:
A.	Prepare a differential analysis, dated July 19 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.
B.	On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? Explain.

Differential Analysis

Shaded cells have feedback.

A. Prepare a differential analysis, dated July 19 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.

Score: 2/107

Differential Analysis

Make Carrying Case (Alternative 1) or Buy Carrying Case (Alternative 2)

July 19

1		Make Carrying Case	Buy Carrying Case	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
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Answer 1

Solution A:

Differential Analysis - Making Carrying Case (alt 1) or Buying Carrying Case (Alt2)
Particulars	Making Carrying Case (Alt 1)	Buying Carrying Case (Alt 2)	Financial advantage (Disadvantage) of buying (Alternative 2)
Sales price	$0.00	$0.00	$0.00
Costs:
Purchase Price	$0.00	$111.00	$111.00
Direct material per unit	$55.00	$0.00	-$55.00
Direct Labor per unit	$40.00	$0.00	-$40.00
Variable overhead per unit	$4.00	$0.00	-$4.00
Fixed factory overhead per unit	$16.00	$16.00	$0.00
Income (Loss)	-$115.00	-$127.00	-$12.00

Solution B:

As there is net financial disadvantage of $12 per unit on buying carrying cases, therefore it is advisable company should make the carrying cases.