{"id":217791,"date":"2025-05-22T13:32:24","date_gmt":"2025-05-22T13:32:24","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=217791"},"modified":"2025-05-22T13:32:26","modified_gmt":"2025-05-22T13:32:26","slug":"pizana-computer-company-has-been-purchasing-carrying-cases-for-its-portable-computers-at-a-purchase-price-of-55-per-unit-5","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/05\/22\/pizana-computer-company-has-been-purchasing-carrying-cases-for-its-portable-computers-at-a-purchase-price-of-55-per-unit-5\/","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 class=\"wp-block-paragraph\">Make-or-Buy Decision<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">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 class=\"wp-block-paragraph\">To determine whether <strong>Pizana Computer Company<\/strong> should <strong>continue purchasing<\/strong> carrying cases at \\$55 per unit or <strong>produce them internally<\/strong>, we need to <strong>compare the costs<\/strong>. Let\u2019s first assume the following unit cost breakdown is provided for in-house production (these are typical components of manufacturing cost):<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Direct Materials<\/strong>: \\$20<\/li>\n\n\n\n<li><strong>Direct Labor<\/strong>: \\$25<\/li>\n\n\n\n<li><strong>Factory Overhead<\/strong>: 36% of direct labor = 0.36 \u00d7 \\$25 = \\$9<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">So, the <strong>total cost to produce one carrying case<\/strong> internally would be:<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><strong>\\$20 (Direct Materials) + \\$25 (Direct Labor) + \\$9 (Factory Overhead) = \\$54 per unit<\/strong><\/p>\n<\/blockquote>\n\n\n\n<h3 class=\"wp-block-heading\">Correct Answer:<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Produce internally<\/strong> \u2013 the internal production cost is <strong>\\$54<\/strong>, which is <strong>\\$1 less<\/strong> than the \\$55 purchase price.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\">300-Word Explanation:<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">In managerial decision-making, companies often conduct <strong>make-or-buy analyses<\/strong> to decide whether it&#8217;s more cost-effective to produce goods internally or purchase them externally. Pizana Computer Company is facing such a scenario for its portable computer carrying cases.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The key to this analysis lies in calculating the <strong>total unit cost of internal production<\/strong> and comparing it with the <strong>purchase price<\/strong> from the supplier.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Based on the cost details:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Direct materials<\/strong> are straightforward expenses directly linked to each unit.<\/li>\n\n\n\n<li><strong>Direct labor<\/strong> is the wage cost attributable to manufacturing a single unit.<\/li>\n\n\n\n<li><strong>Factory overhead<\/strong> includes indirect costs such as utilities, depreciation, and supervision, calculated here at 36% of direct labor. Since direct labor is \\$25, overhead becomes \\$9.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Therefore, the <strong>total in-house cost<\/strong> to produce one carrying case is:<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\">\\$20 (materials) + \\$25 (labor) + \\$9 (overhead) = <strong>\\$54<\/strong><\/p>\n<\/blockquote>\n\n\n\n<p class=\"wp-block-paragraph\">Compared to the purchase price of <strong>\\$55<\/strong>, producing internally saves the company <strong>\\$1 per unit<\/strong>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Even though the cost savings seem small, when scaled over large production volumes, the savings can be substantial. For instance, if the company needs 10,000 units annually, it would save <strong>\\$10,000<\/strong> by producing internally.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Moreover, the company is currently operating <strong>below full capacity<\/strong>, meaning they likely have idle resources and staff. Utilizing unused capacity helps absorb fixed costs more effectively and improves operational efficiency.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Therefore, based on cost minimization and optimal use of capacity, the <strong>economically sound decision is to produce the carrying cases internally<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" src=\"https:\/\/learnexams.com\/blog\/wp-content\/uploads\/2025\/05\/image-70.png\" alt=\"\" class=\"wp-image-217792\"\/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>.<\/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-217791","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/217791","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=217791"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/217791\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=217791"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=217791"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=217791"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}