Riggs Company purchases sails and produces sailboats. It currently produces 1,230 sailboats per year, operating at normal capacity.which is about 80% of full capacity. Riggs purchases sails at $255 each, but the company is considering using the excess capacity tomanufacture the sails instead. The manufacturing cost per sail would be $94 for direct materials, $80 for direct labor, and $90 foroverhead. The $90 overhead is based on $78,720 of annual fixed overhead that is allocated using normal capacity.The president of Riggs has come to you for advice. "It would cost me $264 to make the sails," she says, "but only $255 to buy them.Should I continue buying them, or have I missed something?"(a)Prepare a per unit analysis of the differential costs. (Enter negative amounts using either a negative sign preceding thenumber e.g. -45 or parentheses e.g. (45).)Make SailsDirect material$Direct laborVariable overheadPurchase priceBuy Sails$Net IncomeIncrease (Decrease)$Total unit cost$$$Should Riggs make or buy the sails?Riggs shouldthe sails.

Incremental Analysis :— This analysis shows the comparison between two different alternatives. A…

Answered: Riggs Company purchases sails and…

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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Voltaic Electronics uses a standard part in the manufacture of different types of radios. The total cost of producing 30,000 parts is $100,000, which includes fixed costs of $40,000 and variable costs of $60,000. The company can buy the part from an outside supplier for $2 per unit and avoid 20% of the fixed costs. Assume that the company can use the freed manufacturing space to make another product that can earn a profit of $16,000. If Voltaic outsources, what will be the effect on operating income? A. decrease of $8,000 B. decrease of $24,000 C. increase of $16,000 D. increase of $24,000
Sage Company is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $14.00 per unit. The unit cost for the business to make the part is $22.00, including fixed costs, and $11.00, not including fixed costs. If 39,658 units of the part are normally purchased during the year but could be manufactured using unused capacity, the amount of differential cost increase or decrease from making the part rather than purchasing it would be a a. $555,212 cost decrease b. $118,974 cost decrease c. $118,974 cost increase Od. $317,264 cost increase
Foundations, Inc. produces and sells cosmetic products. Currently, the company is operating at 70% of its capacity. The sales price of its product is $30 per unit, and it incurs a full cost of $25 to produce each unit. Its yearly fixed manufacturing overhead amounts to $20,000. The company has received a one-time order for supplying 5,000 units at $26 per unit. This order can be executed within the excess production capacity and will not involve any additional fixed costs. To make this decision, the management of Foundations should use ________. A. variable costing as the decision is short-term in nature B. variable costing as the decision is long-term in nature C. absorption costing as the decision is short-term in nature D. absorption costing as the decision is long-term in nature
Lakeside Inc. produces a product that currently sells for $60 per unit. Current production costs per unit include direct materials, $16; direct labor, $18; variable overhead, $11; and fixed overhead, $11. Product engineering has determined that certain production changes could refine the product quality and functionality. These new production changes would increase material and labor costs by 20% per unit. Lakeside has received an offer from a nonprofit organization to buy 9,200 units at $46 per unit. Lakeside currently has unused production capacity. Required: a. Calculate the effect on Lakeside's operating income of accepting the order from the nonprofit organization. Increase in operating income
Sage Company is operating at 90% of capacity and is currently purchasing a part used in its manufacturing operations for $18.00 per unit. The unit cost for the business to make the part is $22.00, including fixed costs, and $9.00, not including fixed costs. If 32,786 units of the part are normally purchased during the year but could be manufactured using unused capacity, the amount of differential cost increase or decrease from making the part rather than purchasing it would be a Oa. $590,148 cost decrease Ob. $295,074 cost decrease Oc. $131,144 cost increase Od. $295,074 cost increase
Oriole Inc. has been manufacturing its own shades for its table lamps. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 45% of direct labour costs. The direct materials and direct labour costs per unit to make the lampshades are $4.70 and $5.90, respectively. Normal production is 50,800 table lamps per year. A supplier offers to make the lampshades at a price of $13.60 per unit. If Oriole Inc. accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $42,700 of fixed manufacturing overhead currently being charged to the lampshades will have to be absorbed by other products. (a) Prepare the incremental analysis for the decision to make or buy the lampshades. (Round answers to O decimal places, eg 5.275. If an amount reduces the net income then enter with a negative sign preceding the number eg.-15,000 or parenthesis, eg (15,000) While alternate approaches are possible,…
Advance Auto purchases a component used in the manufacture of automobile generators directly from the supplier. Advance Auto’s generator production operation, which is operated at a constant rate will require 1000 components per month throughout the year (12,000 units annually). Assume the ordering costs are $25 per order, the unit cost is $2.50 per component, and annual holding costs are 20% of the value of the inventory. Advance Auto has 250 working days per year and a lead time of 5 days. Answer the following inventory policy questions: What is the EOQ for this component? What is the reorder point? What is the cycle time? What are the total annual holding and ordering costs associated with your recommended EOQ?
Damon Industries manufactures 16,000 components per year. The manufacturing costs of the components were determined as follows: Direct materials $ 134,000 Direct labor 21,500 Variable manufacturing overhead 61,000 Fixed manufacturing overhead 81,000 An outside supplier has offered to sell the component for $15. If Damon purchases the component from the outside supplier, the manufacturing facilities would be unused and could be rented out for $11,700. If Damon purchases the component from the supplier instead of manufacturing it, the effect on operating profits would be a:
Jordan Corporation, which makes and sells 80,600 radios annually, currently purchases the radio speakers it uses for $25 each. Each radio uses one speaker. The company has idle capacity and is considering the possibility of making the speakers that it needs. Jordan estimates that the cost of materials and labor needed to make speakers would be a total of $23 for each speaker. In addition, supervisory salaries, rent, and other manufacturing costs would be $181,000. Allocated facility-level costs would be $97,800. Required a. Determine the change in net income Jordan would experience if it decides to make the speakers. Net income will be lower by
Harvey Automobiles uses a standard part in the manufacture of several of its trucks. The cost of producing 40,000 parts is $130,000, which includes fixed costs of $90,000 and variable costs of $40,000. The company can buy the part from an outside supplier for $3.30 per unit, and avoid 30% of the fixed costs. Assume that factory space freed up by purchasing the part from an outside source can be used to manufacture another product that can be sold for $179,000 profit. If Harvey Automobiles makes the part, what will its operating income be? $179,000 greater than if the company bought the part $49,000 greater than if the company bought the part $49,000 less than if the company bought the part $79,000 greater than if the company bought the part
One component of communication equipment produced by Briggs Audio Systems is currently being purchased for P225. Management is studying the possibility of manufacturing that component. Annual usage of the part is 5,000 units. Fixed costs (all of which remains unchanged whether the part is made or purchased) are at P140,000 or P28 per unit. If to be produced, Variable costs are P95 per unit for materials; P55 per unit for labor; and P60 per unit for variable manufacturing overhead. Required: Which option would be advantageous and by how much? Make is advantageous by P75,000 Buy is advantageous by P75,000 Make is advantageous by P65,000 Buy is advantageous by P65,000 Group of answer choices 1 2 3 4
Make or Buy Desert Industries manufactures 5,000 units of Part X300 each month for use in production. The facilities now being used to produce Part X300 have fixed monthly overhead costs of $75,000, and a theoretical capacity to produce 7,000 units per month. If Desert were to buy Part X300 from an outside supplier, the facilities would be idle and 80% of the fixed costs would continue to be incurred. There are no alternative uses for the production facilities. The variable production costs of Part X300 are $34 per unit. Fixed overhead is allocated based on planned production levels. If Desert Industries continues to use 5,000 units of Part X300 each month, it would realize a net benefit by purchasing Part X300 from an outside supplier only if the supplier's unit price is less than what amount? $0 Check

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