Make-or-buy decision Balboa Technologies Company has been purchasing carrying cases for its…

Make-or-buy decision

Balboa Technologies Company has been purchasing carrying cases for its portable computers at a delivered cost of $20 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 60% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows:

If Balboa Technologies 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 20% of the direct labor costs.

a. Prepare a differential analysis report, dated June 19, 2012, 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.