Question

ake-or-Buy Decision

Matchless Technologies Company has been purchasing carrying cases for its portable tablets at a delivered cost of $59 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 41% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials	$25.00
Direct labor	22.00
Factory overhead (41% of direct labor)	9.02
Total cost per unit	$56.02

If Matchless Technologies 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.

a. Prepare a differential analysis report for the make-or-buy decision. Enter your final answer as a positive amount if it represents a net cost savings; enter a negative amount if it represents an increase in cost.

MATCHLESS TECHNOLOGIES COMPANY
Manufacture Carrying Case
Differential Analysis Report
Purchase price of carrying case		$
Differential cost to manufacture carrying case:
Direct materials	$
Direct labor
Variable factory overhead
		$

b. On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them?
It would be advisable the carrying cases because the would be $ per unit. Fixed factory overhead is since it will continue .

Answer 1

a. Prepare a differential analysis report for the make-or-buy decision. Enter your final answer as a positive amount if it represents a net cost savings; enter a negative amount if it represents an increase in cost.

MATCHLESS TECHNOLOGIES COMPANY
Manufacture Carrying Case
Differential Analysis Report
Purchase price of carrying case		59
Differential cost to manufacture carrying case:
Direct material	25
Direct labour	22
Variable factory overhead (22*16%)	3.52	50.52
Difference		8.48

It would be advisable manufactuirng the carrying cases because the would increase income $8.48 per unit, FIxed factory overhead is since it will continue.