Special Decisions Exercises
1. Textel is thinking about having one of its products manufactured by a subcontractor. Currently, the
cost of manufacturing 1,000 units follows:
Direct material $45,000
Direct labor 30,000
Factory overhead (30% variable) 98,000
Textel can buy 1,000 units from a subcontractor for $100,000.
Prepare a differential analysis report to determine if Textel should make or buy the product.
2. Snipe Company has been purchasing a component, Part Q, for $19.20 a unit. Snipe is currently
operating at 70% of capacity and no significant increase in production is anticipated in the near
future. The cost of manufacturing a unit of Part Q is estimated as follows:
Direct materials $11.50
Direct labor 4.50
Variable factory overhead 1.12
Fixed factory overhead 3.15
Total $20.27
Prepare a differential analysis to determine if Snipe should make or buy Part Q. What is the best
option? How much would the savings be?