a) Prepare the incremental analysis for the decision to make or buy the finials. (b) Should Ralph Inc. buy the finials? Why or Why not?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Ralph Inc. has been manufacturing its own finials for its curtain rods. The company is currently operating at 100% of capacity. Variable manufacturing overhead is charged to production at the rate of 50% of direct labor cost. The direct materials and direct labor cost per unit to make the finials are $4 and $6, respectively. Normal production is 70,000 curtain rods per year. A supplier offers to make the finials at a price of $13.50 per unit. If Ralph Inc. accepts the supplier’s offer, all variable manufacturing costs will be eliminated, but the $50,000 of fi xed manufacturing overhead currently being charged to the finials will have to be absorbed by other products. Instructions

(a) Prepare the incremental analysis for the decision to make or buy the finials. (b) Should Ralph Inc. buy the finials? Why or Why not?

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