Pottery Ranch Inc. has been manufacturing its own finials for its curtain rods.
ID: 2429680 • Letter: P
Question
Pottery 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 66% of direct labor cost. The direct materials and direct labor cost per unit to make a pair of finials are $3.81 and $4.68, respectively. Normal production is 28,400 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.35 per unit. If Pottery Ranch accepts the supplier’s offer, all variable manufacturing costs will be eliminated, but the $45,900 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products. (a) Prepare an incremental analysis to decide if Pottery Ranch should buy the finials. (Round answers to 0 decimal places, e.g. 1250. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Make Buy Net Income Increase (Decrease) Direct materials $Entry field with incorrect answer now contains modified data $Entry field with correct answer $Entry field with incorrect answer Direct labor Entry field with incorrect answer now contains modified data Entry field with correct answer Entry field with incorrect answer Variable overhead costs Entry field with incorrect answer now contains modified data Entry field with correct answer Entry field with incorrect answer Fixed manufacturing costs Entry field with incorrect answer now contains modified data Entry field with incorrect answer Entry field with correct answer Purchase price Entry field with correct answer Entry field with incorrect answer Entry field with incorrect answer Total annual cost $Entry field with incorrect answer $Entry field with incorrect answer $Entry field with incorrect answer (b) Should Pottery Ranch buy the finials? Entry field with incorrect answer, Pottery Ranch should Entry field with incorrect answer 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 $57,402? Entry field with incorrect answer, income would Entry field with incorrect answer by $Entry field with incorrect answer
Explanation / Answer
As the total cost is less under make option it is better to make the finials
Make Buy (net income increase/decrease) Direct Materials28400*3.81 108204 0 108204 Direct Labor
28400*4.68 132912 0 132912 Variable Manufacturing Costs
66%*132912 87722 0 87722 Fixed Manufacturing Costs 0 0 0 Purchase price
13.35*28400 0 379140 -379140 Total Annual Cost 328838 379140 -50302
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.