{"id":218930,"date":"2025-05-24T16:59:45","date_gmt":"2025-05-24T16:59:45","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=218930"},"modified":"2025-05-24T16:59:48","modified_gmt":"2025-05-24T16:59:48","slug":"pizana-computer-company-has-been-purchasing-carrying-cases-for-its-portable-computers-at-a-purchase-price-of-55-per-unit-6","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/05\/24\/pizana-computer-company-has-been-purchasing-carrying-cases-for-its-portable-computers-at-a-purchase-price-of-55-per-unit-6\/","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 assist with a <strong>make-or-buy<\/strong> decision, we compare the relevant costs of <strong>making the product in-house<\/strong> versus <strong>buying it from an external supplier<\/strong>. Here&#8217;s the detailed cost comparison for <strong>Pizana Computer Company<\/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>Given:<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Purchase price<\/strong> from supplier: <strong>$55\/unit<\/strong><\/li>\n\n\n\n<li><strong>Factory overhead rate<\/strong>: 36% of <strong>Direct Labor<\/strong><\/li>\n\n\n\n<li>The company has <strong>excess capacity<\/strong> (important for fixed overhead considerations)<\/li>\n<\/ul>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Estimated Unit Costs to Produce Internally:<\/strong><\/h3>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><th>Cost Element<\/th><th>Amount ($)<\/th><\/tr><\/thead><tbody><tr><td>Direct Materials<\/td><td>$28.00<\/td><\/tr><tr><td>Direct Labor<\/td><td>$16.00<\/td><\/tr><tr><td>Factory Overhead<\/td><td>36% of $16 = $5.76<\/td><\/tr><tr><td><strong>Total Cost<\/strong><\/td><td><strong>$49.76<\/strong><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Decision:<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Cost to Make<\/strong>: $49.76<\/li>\n\n\n\n<li><strong>Cost to Buy<\/strong>: $55.00<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Savings per Unit<\/strong>:<\/h3>\n\n\n\n<p>$55.00 (buy) \u2013 $49.76 (make) = <strong>$5.24\/unit savings<\/strong> if the company <strong>makes<\/strong> the cases.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\">\u2705 <strong>Correct Answer<\/strong>: The company should <strong>make<\/strong> the carrying cases.<\/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:<\/strong><\/h3>\n\n\n\n<p>In a make-or-buy decision, management evaluates whether producing a good internally is more cost-effective than purchasing it externally. Pizana Computer Company currently buys carrying cases for its portable computers at $55 per unit. However, the company has spare production capacity, meaning it can take on additional production without incurring extra fixed overhead costs.<\/p>\n\n\n\n<p>When considering making the cases in-house, the relevant costs include direct materials, direct labor, and variable overheads (applied here as factory overhead at 36% of direct labor). Based on the given data, the direct materials cost is $28.00, direct labor is $16.00, and factory overhead is $5.76 (36% of $16). Thus, the total cost to make one unit is $49.76.<\/p>\n\n\n\n<p>Since this cost is <strong>lower<\/strong> than the purchase price of $55.00, the company would save <strong>$5.24 per unit<\/strong> by manufacturing the cases internally. Because there\u2019s available capacity, these savings are meaningful and not offset by additional fixed costs (which would only be relevant if capacity needed to be increased).<\/p>\n\n\n\n<p>In conclusion, producing the carrying cases in-house is the better financial decision. Not only does it reduce unit costs, but it also makes efficient use of idle resources. This is a classic example of using marginal cost analysis to enhance profitability in managerial decision-making.<\/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-389.png\" alt=\"\" class=\"wp-image-218931\"\/><\/figure>\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-218930","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/218930","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=218930"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/218930\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=218930"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=218930"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=218930"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}