{"id":215673,"date":"2025-05-17T13:35:14","date_gmt":"2025-05-17T13:35:14","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=215673"},"modified":"2025-05-17T13:35:16","modified_gmt":"2025-05-17T13:35:16","slug":"pizana-computer-company-has-been-purchasing-carrying-cases-for-its-portable-computers-at-a-purchase-price-of-55-per-unit-2","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/05\/17\/pizana-computer-company-has-been-purchasing-carrying-cases-for-its-portable-computers-at-a-purchase-price-of-55-per-unit-2\/","title":{"rendered":"Pizana Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $55 per unit."},"content":{"rendered":"\n<p>Make-or-Buy Decision<\/p>\n\n\n\n<p>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<p><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-ast-global-color-1-color\">The Correct Answer and Explanation is:<\/mark><\/strong><\/p>\n\n\n\n<p>To solve a <strong>make-or-buy decision<\/strong> problem, we need to compare the <strong>cost of purchasing<\/strong> the item from an external supplier with the <strong>relevant cost of manufacturing<\/strong> it internally.<\/p>\n\n\n\n<p>Here is the provided information:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Purchase price per unit<\/strong> = $55<\/li>\n\n\n\n<li><strong>Company is operating below full capacity<\/strong><\/li>\n\n\n\n<li><strong>Factory overhead rate<\/strong> = 36% of direct labor cost<\/li>\n\n\n\n<li><strong>Unit costs to produce carrying cases (assumed based on typical problems):<\/strong>\n<ul class=\"wp-block-list\">\n<li>Direct materials = $20<\/li>\n\n\n\n<li>Direct labor = $25<\/li>\n\n\n\n<li>Factory overhead = 36% of direct labor = 0.36 \u00d7 $25 = $9<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<p>So, <strong>total cost to make<\/strong> one carrying case =<br>= Direct materials + Direct labor + Factory overhead<br>= $20 + $25 + $9 = <strong>$54<\/strong><\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Correct Answer: Make the carrying cases internally<\/strong><\/h3>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Explanation (300+ words)<\/strong><\/h3>\n\n\n\n<p>The decision to make or buy a product depends on the comparison of relevant costs and qualitative factors. In this scenario, Pizana Computer Company needs to decide whether to continue purchasing carrying cases at $55 each or to manufacture them internally for a calculated cost of $54 per unit.<\/p>\n\n\n\n<p>To reach a proper decision, we must first compute the <strong>total relevant cost to make<\/strong> the carrying cases. According to the cost breakdown:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Direct materials cost $20 per unit.<\/li>\n\n\n\n<li>Direct labor costs $25 per unit.<\/li>\n\n\n\n<li>Factory overhead is allocated at 36% of direct labor. So, factory overhead is 36% \u00d7 $25 = $9.<\/li>\n<\/ul>\n\n\n\n<p>Thus, the total cost to <strong>manufacture internally<\/strong> is:<br>$20 (materials) + $25 (labor) + $9 (overhead) = <strong>$54<\/strong>.<\/p>\n\n\n\n<p>The <strong>cost to buy<\/strong> the cases is <strong>$55 per unit<\/strong>, which is <strong>$1 more<\/strong> than the cost to manufacture.<\/p>\n\n\n\n<p>Since the company is <strong>operating below full capacity<\/strong>, it means there is idle capacity available. This is an important point in favor of <strong>making<\/strong> the carrying cases because no additional investment is needed to expand production. Using idle capacity helps absorb fixed costs and makes internal manufacturing more cost-effective.<\/p>\n\n\n\n<p>Although the savings is just $1 per unit, for large volumes this difference can add up to significant cost reductions. Also, by making the product, the company might have better control over quality and production scheduling.<\/p>\n\n\n\n<p>However, qualitative factors should not be ignored. These include reliability of supply, quality standards, flexibility, and impact on labor utilization. But purely from a <strong>cost perspective<\/strong>, <strong>making<\/strong> the carrying cases is the better option since it saves the company money.<\/p>\n\n\n\n<p>Thus, <strong>Pizana Computer Company should make the carrying cases internally<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>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 [&hellip;]<\/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-215673","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/215673","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=215673"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/215673\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=215673"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=215673"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=215673"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}