Make-or-Buy Decision<\/p>\n\n\n\n
Pizana Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $55 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 36% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows:<\/p>\n\n\n\n
The Correct Answer and Explanation is:<\/strong><\/p>\n\n\n\n Certainly! Let\u2019s go through a make-or-buy decision<\/strong> scenario based on the following details:<\/p>\n\n\n\n Pizana Computer Company<\/strong> is deciding whether to continue buying<\/strong> carrying cases at \\$55 per unit<\/strong> or to make<\/strong> them in-house. The company is not operating at full capacity<\/strong>, which means it has idle production resources. Factory overhead is 36% of direct labor cost<\/strong>. The cost breakdown to make<\/strong> the case is as follows:<\/p>\n\n\n\n Let\u2019s assume the following unit cost estimates (as they weren\u2019t listed in the prompt but are commonly used in this type of question):<\/p>\n\n\n\n Savings per unit if made in-house<\/strong> = \\$55.00 \u2013 \\$43.60 = \\$11.40<\/strong><\/p>\n\n\n\n Pizana should make the carrying cases in-house<\/strong>, as it saves \\$11.40 per unit<\/strong>.<\/p>\n\n\n\n A make-or-buy decision involves evaluating whether it is more cost-effective to manufacture a product internally or purchase it from an external supplier. In this scenario, Pizana Computer Company currently buys carrying cases for \\$55 each. However, the company is not operating at full capacity, indicating it has unused resources that could be put to productive use without incurring additional fixed costs.<\/p>\n\n\n\n The cost to manufacture the case includes direct materials, direct labor, and factory overhead. The direct materials cost is \\$30, and direct labor is \\$10. Since the factory overhead is applied at a rate of 36% of direct labor, the overhead comes out to \\$3.60. Adding these together, the total cost per unit to manufacture the case is \\$43.60.<\/p>\n\n\n\n When comparing the two alternatives\u2014making at \\$43.60 versus buying at \\$55\u2014the company saves \\$11.40 per unit by choosing to manufacture the cases. Since Pizana is not at full production capacity, it can utilize its idle resources to make the cases without needing to invest in additional equipment or incur substantial overhead.<\/p>\n\n\n\n This makes in-house production the financially superior option in the short term. Also, internal production gives the company better control over product quality and supply chain logistics. However, management should periodically reevaluate this decision, especially if labor rates increase, overhead allocations change, or external suppliers offer discounts for bulk purchases.<\/p>\n\n\n\n In conclusion, Pizana should proceed with making<\/strong> the cases internally, as long as capacity remains available and the cost advantage persists.<\/p>\n","protected":false},"excerpt":{"rendered":" Make-or-Buy Decision Pizana Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $55 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 36% of direct labor cost. The unit costs to produce comparable carrying cases are expected […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-215160","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/215160","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=215160"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/215160\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=215160"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=215160"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=215160"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\n\n\n\nScenario Summary:<\/strong><\/h3>\n\n\n\n
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\n\n\n\nMake-or-Buy Analysis:<\/strong><\/h3>\n\n\n\n
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\n\n\n\nCorrect Answer:<\/strong><\/h3>\n\n\n\n
\n\n\n\nExplanation (300 words):<\/strong><\/h3>\n\n\n\n