Riggs Company purchases sails and produces sailboats. It currently produces 1,280 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 to manufacture the sails instead. The manufacturing cost per sail would be $97 for direct materials, $87 for direct labor, and $90 for overhead. The $90 overhead is based on $78,080 of annual fixed overhead that is allocated using normal capacity. The president of Riggs has come to you for advice. "It would cost me $274 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 the number e.g. -45 or parentheses e.g. (45).)
Riggs Company purchases sails and produces sailboats. It currently produces 1,280 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 to manufacture the sails instead. The manufacturing cost per sail would be $97 for direct materials, $87 for direct labor, and $90 for overhead. The $90 overhead is based on $78,080 of annual fixed overhead that is allocated using normal capacity. The president of Riggs has come to you for advice. "It would cost me $274 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 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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Vishnu
Transcribed Image Text:Riggs Company purchases sails and produces sailboats. It currently produces 1,280 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 to
manufacture the sails instead. The manufacturing cost per sail would be $97 for direct materials, $87 for direct labor, and $90 for
overhead. The $90 overhead is based on $78,080 of annual fixed overhead that is allocated using normal capacity.
The president of Riggs has come to you for advice. "It would cost me $274 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 the
number e.g. -45 or parentheses e.g. (45).)
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