Exercise 7-7 a-b Riggs Company purchases sails and produces sailboats. It currently produces 1,230 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Riggs purchases sails at $261 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $100 for direct materials, $87 for direct labor, and $90 for overhead. The $90 overhead is based on $78,720 of annual fixed overhead that is allocated using normal capacity.The president of Riggs has come to you for advice. “It would cost me $277 to make the sails,” she says, “but only $261 to buy them. Should I continue buying them, or have I missed something?”
Exercise 7-7 a-b Riggs Company purchases sails and produces sailboats. It currently produces 1,230 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Riggs purchases sails at $261 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $100 for direct materials, $87 for direct labor, and $90 for overhead. The $90 overhead is based on $78,720 of annual fixed overhead that is allocated using normal capacity.The president of Riggs has come to you for advice. “It would cost me $277 to make the sails,” she says, “but only $261 to buy them. Should I continue buying them, or have I missed something?”
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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