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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 63% of direct labor cost. The direct materials and direct labor cost per unit to make a pair of finials are $3.51 and $4.73, respectively. Normal production is 28,300 cu rods per year. A supplier offers to make a pair of finials at a price of $13.20 per unit. If Pottery Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $48,200 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products. (a) Prepare an incremental analysis to decide if Pottery Ranch should buy the finials. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parenthese e.g. (45).) Direct materials Direct labor Variable overhead costs Fixed manufacturing costs Purchase price Total annual cost $ Make (b) Should Pottery Ranch buy the finials? +, Pottery Ranch should $ Buy ◆ the finials. Net Income Increase (Decrease) $

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 63% of direct labor cost. The direct materials and direct labor cost per unit to make a pair of finials are $3.51 and $4.73, respectively. Normal production is 28,300 cu rods per year. A supplier offers to make a pair of finials at a price of $13.20 per unit. If Pottery Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $48,200 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products. (a) Prepare an incremental analysis to decide if Pottery Ranch should buy the finials. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parenthese e.g. (45).) Direct materials Direct labor Variable overhead costs Fixed manufacturing costs Purchase price Total annual cost $ Make (b) Should Pottery Ranch buy the finials? +, Pottery Ranch should $ Buy ◆ the finials. Net Income Increase (Decrease) $

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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Exercise 26-4 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 63% of direct labor cost. The direct materials and direct labor cost per unit to make a pair of finials are $3.51 and $4.73, respectively. Normal production is 28,300 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.20 per unit. If Pottery Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $48,200 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products. (a) Prepare an incremental analysis to decide if Pottery Ranch should buy the finials. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Direct materials Direct labor Variable overhead costs Fixed manufacturing costs Purchase price Total annual cost $ Make (b) Should Pottery Ranch buy the finials? +, Pottery Ranch should $ Buy ◆ the finials. Net Income Increase (Decrease) $ $
Transcribed Image Text:Exercise 26-4 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 63% of direct labor cost. The direct materials and direct labor cost per unit to make a pair of finials are $3.51 and $4.73, respectively. Normal production is 28,300 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.20 per unit. If Pottery Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $48,200 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products. (a) Prepare an incremental analysis to decide if Pottery Ranch should buy the finials. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Direct materials Direct labor Variable overhead costs Fixed manufacturing costs Purchase price Total annual cost $ Make (b) Should Pottery Ranch buy the finials? +, Pottery Ranch should $ Buy ◆ the finials. Net Income Increase (Decrease) $ $
(c) Would your answer be different in (b) if the productive capacity released by not making the finials could be used to produce income of $61,137? by $ +, income would Click if you would like to Show Work for this question: Open Show Work
Transcribed Image Text:(c) Would your answer be different in (b) if the productive capacity released by not making the finials could be used to produce income of $61,137? by $ +, income would Click if you would like to Show Work for this question: Open Show Work
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