Connected Technologies, Inc. has been purchasing carrying cases for its portable tablets at a delivered cost of $26.00 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at a rate of 55% of direct labor cost. The total unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $ 8.00 Direct Labor $ 13.00 Factory overhead (55% of direct labor) $ 7.15 Total cost per unit $ 28.15 If Connected Technologies 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 direct labor costs. Prepare a differential analysis report for the make-or-buy decision. On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? Explain.
Connected Technologies, Inc. has been purchasing carrying cases for its portable tablets at a delivered cost of $26.00 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at a rate of 55% of direct labor cost. The total unit costs to produce comparable carrying cases are expected to be as follows:
Direct materials $ 8.00
Direct Labor $ 13.00
Factory overhead (55% of direct labor) $ 7.15
Total cost per unit $ 28.15
If Connected Technologies manufactures the carrying cases, fixed
- Prepare a differential analysis report for the make-or-buy decision.
- On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? Explain.
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