Sheridan Ranch Inc. has been manufacturing its own finials for its curtain rods. The company is currently operating at100% of capacity, and variable manufacturing overhead is charged to production at the rate of 66% of direct labor cost.The direct materials and direct labor cost per unit to make a pair of finials are $4 and $5, respectively. Normalproduction is 34,300 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, allvariable manufacturing costs will be eliminated, but the $45,700 of fixed manufacturing overhead currently beingcharged to the finials will have to be absorbed by other products.(a)Prepare the incremental analysis for the decision to make or buy the finials. (Enter negative amounts using eithera negative sign preceding the number e.g. -45 or parentheses e.g. (45).)Directmaterials.Direct laborVariableoverheadcostsFixedmanufacturingcostsPurchasepriceTotal annualcost(b)$(c)$Should Sheridan Ranch buy the finials?Make,Sheridan Ranch should◆, income would$◆ by $$the finials.Buy$$Would your answer be different in (b) if the productive capacity released by not making the finials could be used toproduce income of $34,200?Net IncomeIncrease (Decreas

Solution a: Financial advantage (Disadvantage) of buying = Relevant cost to make - Relevant cost to…

Answered: Sheridan Ranch Inc. has been…

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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