Pnok Company has been purchasing a component, Part Q, for $18.90 a unit. Pnok is currently operating at 70% of capacity and no significant increase in production is anticipated in the near future. The cost of manufacturing a unit of Part Q, determined by absorption costing methods, is estimated as follows:
|
Direct materials
|
$11.25
|
|
Direct labor
|
4.50
|
|
Variable factory overhead
|
1.12
|
|
Fixed factory overhead
|
3.15
|
|
Total
|
$20.02
|
|
|
Prepare a differential analysis report, dated March 12 of the current year, on the decision to make or buy Part Q.