please help *Exercise 21-7 (Part Level Submission) Riggs Company purchases sails

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*Exercise 21-7 (Part Level Submission) Riggs Company purchases sails and produces sailboats. It currently produces 1,300 sailboats per year, operating at normal capacity, which is about 80 % of full capacity, Riggs purchases sails at 258 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $ 92.61 for direct materials, $83.37 for direct labor, and $90 for overhead. The s 90 overhead includes $ 78,500 of annual fixed overhead that is allocated using normal capacity. The president of Riggs has come to you for advice. "It would cost me $ 265.98 to make the sails," she says, "but only 258 to buy them. Should I continue buying them, or have I missed something?" Prepare a per unit analysis of the differential costs. (Round answers to 2 decimal places, e.g. 15.25. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Net Income Increase (Decrease) Make Sails Buy Sails Direct material Direct labor Variable overhead Purchase price Total unit cost Should Riggs make or buy the sails? Riggs should Attempts: 0 of 3 used The parts of this question must be completed in order. This part will be available when you complete the part above.

Explanation / Answer

Riggs Company Current Production 1300 Sailboarts Operating at normal capacity 80% Selling Price of Riggs $                    258.00 Manufacturing cost per sail Direct Material $                      92.61 Direct Labor $                      83.37 Overhead $                      90.00 Cost of making Sails $                    265.98 Fixed Overhead(includes in $90) $              78,500.00 Buying cost of Sails $                    258.00 Make Sails Buy Sails Net Income Increase/Decrease Direct Material $                      92.61 $                            92.61 Direct Labor $                      83.37 $                            83.37 * Variable Overhead $                      29.62 $                            29.62 Purchase Price $ 258.00 $                        -258.00 Total unit cost $                    205.60 $ 258.00 $                          -52.40 Saving if product is manufactured $                      52.40 Riggs should make the Sails. Fixed cost is sunk cost and irrelevant for decision. Total Overhead $                      90.00 Fixed Overhead cost per unit=($78500/1300) $                      60.38 * Variable Overhead $                      29.62

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