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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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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