Carla Vista Company purchases sails and produces sailboats. It currently produces 1,250 sailboats per year, operating at normalcapacity, which is about 80% of full capacity. Carla Vista purchases sails at $262 each, but the company is considering using the excesscapacity to manufacture the sails instead. The manufacturing cost per sail would be $94 for direct materials, $84 for direct labor, and$90 for overhead. The $90 overhead is based on $77,500 of annual fixed overhead that is allocated using normal capacity.The president of Carla Vista has come to you for advice. "It would cost me $268 to make the sails," she says, "but only $262 to buythem. Should I continue buying them, or have I missed something?"(a)Prepare a per unit analysis of the differential costs. (Enter negative amounts using either a negative sign preceding the number e.g. -45or parentheses e.g. (45).)Direct materialDirect laborVariable overheadPurchase priceTotal unit costMake SailsCarla Vista shouldtAShould Carla Vista make or buy the sails?the sails.LAtABuy Sails$$LANet IncomeIncrease (Decrease)

In make or buy decision-making, the management determines the cost incurred to producing or make the…

Answered: Carla Vista Company purchases sails and…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball Is manufactured In a small plant that relles heavly on direct labor workers. Thus, varlable expenses are high, totallng $15.00 per ball, of which 60% Is direct labor cost. Last year, the company sold 58,000 of these balls, with the following results: $ 1,450,000 Sales (58,800 balls) variable expenses Contribution margin Fixed expenses 870,000 580,000 374,000 Net operating income 206,000 Required: 1. Compute (a) last year's CM ratio and the break-even polnt in balls, and (b) the degree of operating leverage at last year's sales level. 2. Due to an Increase in labor rates, the company estimates that next year's varlable expenses will Increase by $3.00 per ball. If this change takes place and the selling price per ball remalns constant at $25.00, what will be next year's CM ratio and the break-even polnt in balls? 3. Refer to the data in (2) above. If the expected change in varlable…
Pottery land Inc. has been manufacturing its own finials for its curtain rods. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 70% of direct labor cost. The direct materials and direct labor cost per unit to make a pair of finials are $4 and $5, respectively. Normal production is 30,000 curtain rods per year.A supplier offers to make a pair of finials at a price of $12.95 per unit. If Pottery land accepts the supplier’s offer, all variable manufacturing costs will be eliminated, but the $45,000 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products.(a)Prepare the incremental analysis for the decision to make or buy the finials. Make Buy Net IncomeIncrease (Decrease) Direct materials $ $ $ Direct labor Variable overhead costs Fixed manufacturing costs…
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Muscat Inc. has been manufacturing its own Camera for its Mobile Phone. The company is currently operating at 100% of capacity. Variable manufacturing overhead cost is OMR 3 per unit. The direct materials and direct labor cost per unit to make the camera are OMR 4 and OMR 6, respectively, fixed cost is OMR 50,000. Normal production is 50,000 Mobile Phone per year. A supplier offers to make the Cameras at a price of OMR 13.50 per unit. If Muscat accepts the supplier's offer; all variable manufacturing costs will be eliminated, but the OMR 50,000 of fixed manufacturing overhead currently being charged to the Cameras will have to be absorbed by other products. what will be the effect on net income? if the productive capacity released by not making the Cameras could be used to produce income of R.O. 40,000 Select one: O a. OMR 15,000 increase O b. None of the answers are correct Oc.OMR 25,000 decrease O d. OMR 15,000 decrease e. OMR 725,000 increase
Diamond Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $84 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 50% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $56 Direct labor 20 Factory overhead (50% of direct labor) 10 Total cost per unit $86 If Diamond Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 10% of the direct labor costs. Required: A. Prepare a differential analysis, dated February 24 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text…
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