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)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 eg.-45 or parentheses eg. (45).)
Direct materials
Direct labor
Variable overhead costs
Fixed manufacturing costs
Purchase price
Make
$
Buy
Net Income
Increase (Decrease)
$
Total annual cost
$
$
$
(b)
Should Sheridan Ranch buy the finials?
(c)
V
Sheridan Ranch should
the finials.
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?
V , income would
✓ by $
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 eg.-45 or parentheses eg. (45).) Direct materials Direct labor Variable overhead costs Fixed manufacturing costs Purchase price Make $ Buy Net Income Increase (Decrease) $ Total annual cost $ $ $ (b) Should Sheridan Ranch buy the finials? (c) V Sheridan Ranch should the finials. 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? V , income would ✓ by $
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