Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $24 per unit. The
company, which is currently operating below full capacity, charges factory overhead to production at the rate of 40% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $8.00 Direct labor 12.00 Factory overhead (40% of direct labor) 4.80
Total cost per unit $24.80
If Somerset 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.
Prepare a differential analysis dated April 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If an amount is zero, enter "0". If required, round your answers to two decimal places.
Total cost per unit $24.80
If Somerset 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.
Prepare a differential analysis dated April 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If an amount is zero, enter "0". If required, round your answers to two decimal places.
1 answer:
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Answer:
b. $303,000
Explanation:
The activity rate
1. Machining =
= $ 20 per machine hour
2. Machine set up =
= $ 500 per set up
3. Product design =
= $ 22000 per product
4. Order size =
= $ 26 per direct labor hour
Now the ABC cost (Product T05P)
1. Machining =
= 4000 x 20
= $ 80,000
2. Machine set ups =
= 90 x 500
= $ 45,000
3. Product design =
= 1 x 22000
= $ 22,000
4. Order size =
= 6000 x 26
= $ 156,000
Therefore, the total manufacturing overhead cost assigned to product T05P = 80000 + 45000 + 22000 + 156000
= $ 303,000