Question - Hart 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:
Direct Materials $25.00
Direct Labor 32.00
Factory Overhead (35% of direct labor) 11.20
Total Cost per unit $68.20
If Hart 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 direct labor costs.
a. Prepare a differential analysis report dated June 5, 2008, for the make-or-buy decision.
b. On the bases of the data presented, would it be advisable to make the carrying cases or to continue buying them. Explain?