Homework SourseDifferential Analysis Final Question 115 SolutionA Different
Differential Analysis Final Question 115
Solution
A) Differential Analysis
Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2)
July 19 (Amounts in $)
B) Assuming there were no better alternative uses for the spare capacity, It would be advisable to manufacture the carrying cases because the cost savings would be $12 per unit. Fixed factory overhead is $16 per unit. It will continue whether the carrying cases are purchased or manufactured.
| Particulars | Make Carrying Case (Alt. 1) | Buy Carrying Case (Alt. 2) | Differential Effect on Income (Alt. 2) |
| Costs: | |||
| Purchase price | 0 | 111 | (111) |
| Direct materials per unit | 55 | 0 | 55 |
| Direct labor per unit | 40 | 0 | 40 |
| Variable factory overhead per unit (10%*40 = 4) | 4 | 0 | 4 |
| Fixed factory overhead per unit (20-4) | 16 | 16 | 0 |
| Income/(Loss) | 115 | 127 | (12) |
