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Alam Computer Company has been purchasing carrying cases for its portable computers

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:

DM                                          $25.00


DL                                            $32.00


Factory O/H


(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.

May 10 2018 View more View Less

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