Differential Analysis

Submit a paper which is 2-3 pages in length (no more than 3-pages), exclusive of the reference page. Paper should be double spaced in Times New Roman (or its equivalent) font which is no greater than 12 points in size. The paper should cite at least two sources in APA format.  One source can be your textbook.

Please describe the circumstances of the following case study and recommend a course of action. Explain your approach to the problem, perform relevant calculations and analysis, and formulate a recommendation. Ensure your work and recommendation are thoroughly supported.

Case Study:

A vacuum manufacturer has prepared the following cost data for manufacturing one of its engine components based on the annual production of 50,000 units.

 

DescriptionCost per Month

Direct Materials   

$75,000

Direct Labor

$100,000

Total

$175,000

 

In addition, variable factory overhead is applied at $7.50 per unit. Fixed factory overhead is applied at 150% of direct labor cost per unit. The vacuums sell for $150 each. A third party has offered to make the engines for $60 per unit. 75% of fixed factory overhead, which represents executive salaries, rent, depreciation, and taxes, continue regardless of the decision. Should the company make or buy the engines?

Superior papers will:

 

  • Perform all calculations correctly.
  • Articulate the approach to solving the problem, including which financial information is relevant and not relevant.
  • Correctly conclude on whether the company should make or buy the engines.

 

Propose other factors that should be considered when making this decision and elaborate on whether or not those factors do or do not support the decision.

Be sure to use APA formatting in your paper.  Purdue University’s Online Writing LAB (OWL) is a free website that provides excellent information and resources for understanding and using the APA format and style

 
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