Prepare the incremental analysis for the decision to make or buy the finials. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Prepare the incremental analysis for the decision to make or buy the finials. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Oriole 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 69% 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 25,400 curtain rods per year.
A supplier offers to make a pair of finials at a price of $13.20 per unit. If Oriole Ranch accepts the supplier's offer, all variable
manufacturing costs will be eliminated, but the $45,000 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 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
(b)
(c)
$
Should Oriole Ranch buy the finials?
$
Oriole Ranch should
, income would
Make
the finials.
V by $
$
Buy
$
$
Would your answer be different in (b) if the productive capacity released by not making the finials could be used to produce income of
$24,600?
Net Income
Increase (Decrease)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fae52a321-e4f7-42c1-9b95-b76b3188cce0%2F10dd5eb4-d78d-454a-a08f-3d3757b09ce6%2Fszfe9fn_processed.png&w=3840&q=75)
Transcribed Image Text:Oriole 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 69% 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 25,400 curtain rods per year.
A supplier offers to make a pair of finials at a price of $13.20 per unit. If Oriole Ranch accepts the supplier's offer, all variable
manufacturing costs will be eliminated, but the $45,000 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 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
(b)
(c)
$
Should Oriole Ranch buy the finials?
$
Oriole Ranch should
, income would
Make
the finials.
V by $
$
Buy
$
$
Would your answer be different in (b) if the productive capacity released by not making the finials could be used to produce income of
$24,600?
Net Income
Increase (Decrease)
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