Fremont Computer Company has been purchasing carrying cases for its portable computers at a...


Fremont Computer Company has been purchasing carrying cases for its portable computers at a purchase of $59 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 46% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows:

Direct materials $29
Direct labor 19
Factory overhead (46% of direct labor) 8.74
Total cost per unit $56.74

If Fremont 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 15% of the direct labor costs.

a) Prepare a differential analysis dated September 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case.

If required, round your answers to two decimal places.

b) Assuming there were no better alternative uses for the spare capacity, it would _ _ _ _ to manufacture the carrying cases. Fixed factory overhead is _ _ _ _ to the decision.

Incremental analysis:

The incremental analysis aids in the decision making for the finance managers for evaluating different business scenarios like accepting or rejecting a special price order, make or buy. The relevant financial data for each of the alternatives are determined and analyzed

Answer and Explanation: 1

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a) The relevant cost to make the carrying cases is as follows

  • The direct materials cost of $29
  • The direct labor cost of $19.00
  • The variable factory...

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Incremental Analysis: Definition & Examples


Chapter 9 / Lesson 7

Learn about incremental analysis. Understand what incremental analysis is, learn the applications of incremental analysis, and see examples of incremental analysis.

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