Alam 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 35% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be:
(35% of DL) $11.20
Total Cost per unit $68.20
If Alam 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 25% of the DL costs.
(a) Prepare a differential analysis report, dated June 5, 2008, for the make-or-buy decision.
(b) On the basis of the data presented, would it be advisable tomake the carrying cases or to continue buying them? Explain.
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