Sandhill Company purchases sails and produces sailboats. It currently produces 1,250 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Sandhill purchases sails at $256 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $91 for direct materials, $90 for direct labor, and $90 for total manufacturing overhead. The $90 total manufacturing overhead includes $78,750 of annual fixed overhead that is allocated using normal capacity. The president of Sandhill has come to you for advice. "It would cost me $271 to make the sails," she says, "but only $256 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).) Make Sails Buy Sails Net Income Increase (Decrease) Direct material $ $ Direct labor Variable overhead Purchase price Total unit cost Should Sandhill make or buy the sails? Sandhill should the sails. A $

Sandhill Company purchases sails and produces sailboats. It currently produces 1,250 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Sandhill purchases sails at $256 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $91 for direct materials, $90 for direct labor, and $90 for total manufacturing overhead. The $90 total manufacturing overhead includes $78,750 of annual fixed overhead that is allocated using normal capacity. The president of Sandhill has come to you for advice. "It would cost me $271 to make the sails," she says, "but only $256 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).) Make Sails Buy Sails Net Income Increase (Decrease) Direct material $ $ Direct labor Variable overhead Purchase price Total unit cost Should Sandhill make or buy the sails? Sandhill should the sails. A $

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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