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hart computer company has been purchasing carrying cases for its portable computers 647816

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 basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? Explain.

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