Current Attempt in ProgressRiggs 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 $261 each, but the company is considering using the excess capacity tomanufacture the sails instead. The manufacturing cost per sail would be $100 for direct materials, $87 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 $277 to make the sails," she says, "but only $261 to buy them.Should I continue buying them, or have I missed something?"(a)Prepare a per unit analysis of the differential costs. (Enter negative amounts using either a negative sign preceding thenumber e.g. -45 or parentheses e.g. (45).)Direct materialDirect laborDirect materialDirect laborVariable overheadPurchase price$Total unit costPrepare 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).)$Make Sails$Make Sails$Should Riggs make or buy the sails?$Buy Sails$$Buy Sails$Net IncomeIncrease (Decrease)$Net IncomeIncrease (Decrease)

Lets understand the basics. When there is option available between the purchase and making product…

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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Sheridan 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 50% of direct labour costs. The direct materials and direct labour costs per unit to make the lampshades are $4.50 and $5.50, respectively. Normal production is 48,000 table lamps per year. A supplier offers to make the lampshades at a price of $13.20 per unit. If Sheridan Inc. accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $40,000 of fixed manufacturing overhead currently being charged to the lampshades will have to be absorbed by other products. Prepare the incremental analysis for the decision to make or buy the lampshades. (Round answers to O decimal places, e.g. 5,275. If an amount reduces the net income then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). While alternate approaches are…
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