Oriole Company purchases sails and produces sailboats. It currently produces 1,300 sailboats per year, operating at normal capacity. which is about 80% of full capacity, Oriole purchases sails at $259 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $93 for direct materials, $85 for direct labor, and $90 for overhead. The $90 overhead is based on $78,000 of annual fixed overhead that is allocated using normal capacity. The president of Oriole has come to you for advice. "It would cost me $268 to make the sails," she says, "but only $259 to buy them. Should I continue buying them, or have I missed something?"
Oriole Company purchases sails and produces sailboats. It currently produces 1,300 sailboats per year, operating at normal capacity. which is about 80% of full capacity, Oriole purchases sails at $259 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $93 for direct materials, $85 for direct labor, and $90 for overhead. The $90 overhead is based on $78,000 of annual fixed overhead that is allocated using normal capacity. The president of Oriole has come to you for advice. "It would cost me $268 to make the sails," she says, "but only $259 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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Transcribed Image Text:Oriole Company purchases sails and produces sailboats. It currently produces 1,300 sailboats per year, operating at normal capacity.
which is about 80% of full capacity, Oriole purchases sails at $259 each, but the company is considering using the excess capacity to
manufacture the sails instead. The manufacturing cost per sail would be $93 for direct materials. $85 for direct labor, and $90 for
overhead. The $90 overhead is based on $78,000 of annual fixed overhead that is allocated using normal capacity,
The president of Oriole has come to you for advice. "It would cost me $268 to make the sails," she says, "but only $259 to buy them.
Should I continue buying them, or have I missed something?
(a)
Transcribed Image Text:Prepare a per unit analysis of the differential costs. (Enter negative amounts using either a negative sign preceding the number e.g. -45
or parentheses e.g. (45).)
Direct material
Direct labor
Variable overhead
Purchase price
Total unit cost
Make Sails
Should Oriole make or buy the sails?
Oriole should
the sails.
Buy Sails
Net Income
Increase (Decrease)
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