Financial & Managerial Accounting 13th Edition by Carl Warren , James Reeve,Jonathan Duchac

Exercise 3

Make or buy
A restaurant bakes its own bread for a cost of $165 per unit (100 loaves), including fixed costs of $43 per unit. A proposal is offered to purchase bread from an outside source for $110 per unit, plus $15 per unit for delivery. Prepare a differential analysis dated August 16 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the bread, assuming fixed costs are unaffected by the decision.
A company manufactures various sized plastic bottles for its medicinal product. The manufacturing cost for small bottles is $67 per unit (100 bottles), including fixed costs of $22 per unit. A proposal is offered to purchase small bottles from an outside source for $35 per unit, plus $5 per unit for freight. Prepare a differential analysis dated March 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the bottles, assuming fixed costs are unaffected by the decision.