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Pottery Ranch 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 62% 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 30,400 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.15 per unit. If Pottery Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $43,100 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products.

Pottery Ranch 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 62% 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 30,400 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.15 per unit. If Pottery Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $43,100 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products.

FINANCIAL ACCOUNTING
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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Pottery Ranch 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 62% 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 30,400 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.15 per unit. If Pottery Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $43,100 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. (Enter negative armounts using either a negative sign preceding the number eg. -45 or parentheses es. (45) Net Income Make Buy Increase (Decrease) Direct materials Direct labor Variable overhead costs Fixed manufacturing costs Purchase price Total annual cost
Transcribed Image Text:Pottery Ranch 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 62% 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 30,400 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.15 per unit. If Pottery Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $43,100 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. (Enter negative armounts using either a negative sign preceding the number eg. -45 or parentheses es. (45) Net Income Make Buy Increase (Decrease) Direct materials Direct labor Variable overhead costs Fixed manufacturing costs Purchase price Total annual cost
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