Sheridan 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 51% 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 31,700 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.05 per unit. If Sheridan Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $46,900 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 A Fixed manufacturing costs Purchase price Total annual cost +A $ Make A +A $ Buy Net Income Increase (Decrease) $ $ (b) Should Sheridan Ranch buy the finials? Sheridan Ranch should ☑ the finials. (c) Would your answer be different in (b) if the productive capacity released by not making the finials could be used to produce income of $53,800? ☑, income would by $
Sheridan 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 51% 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 31,700 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.05 per unit. If Sheridan Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $46,900 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 A Fixed manufacturing costs Purchase price Total annual cost +A $ Make A +A $ Buy Net Income Increase (Decrease) $ $ (b) Should Sheridan Ranch buy the finials? Sheridan Ranch should ☑ the finials. (c) Would your answer be different in (b) if the productive capacity released by not making the finials could be used to produce income of $53,800? ☑, income would by $
Chapter10: Short-term Decision Making
Section: Chapter Questions
Problem 4EB: Dimitri Designs has capacity to produce 30,000 desk chairs per year and is currently selling all...
Related questions
Question
Transcribed Image Text:Sheridan 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 51% 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 31,700 curtain rods per year.
A supplier offers to make a pair of finials at a price of $13.05 per unit. If Sheridan Ranch accepts the supplier's offer, all variable
manufacturing costs will be eliminated, but the $46,900 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
A
Fixed manufacturing costs
Purchase price
Total annual cost
+A
$
Make
A
+A
$
Buy
Net Income
Increase (Decrease)
$
$
Transcribed Image Text:(b)
Should Sheridan Ranch buy the finials?
Sheridan Ranch should
☑ the finials.
(c)
Would your answer be different in (b) if the productive capacity released by not making the finials could be used to produce income of
$53,800?
☑, income would
by $
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
Recommended textbooks for you
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Principles of Cost Accounting
Accounting
ISBN:
9781305087408
Author:
Edward J. Vanderbeck, Maria R. Mitchell
Publisher:
Cengage Learning
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Principles of Cost Accounting
Accounting
ISBN:
9781305087408
Author:
Edward J. Vanderbeck, Maria R. Mitchell
Publisher:
Cengage Learning
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Essentials of Business Analytics (MindTap Course …
Statistics
ISBN:
9781305627734
Author:
Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:
Cengage Learning