Pottery Ranch nc. has been manufacturing its own fina s or its curtain rods. The

Question

Pottery Ranch nc. has been manufacturing its own fina s or its curtain rods. The company s currently operating at 100% of capacity an variable manura ring overhead is charged to production at the rate of 69% of direct labor cost. The direct materials and direct labor cost per un·to make a ar of Isa e 38 and $5.00, respectively. Normal production is 26,600 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.32 per unit. If Pottery Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated but the $45,100 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products Prepare an incremental analysis to decide if Pottery Ranch should buy the finials. (Round answers to O decimal places, e.g. 1250. Enter negative amounts using either a negative sign preceding the number e.g.-45 or parentheses e.g. (45).) Net Income Increase (Decrease) Make Direct materials Direct labor Variable overhead costs Fixed manufacturing costs Purchase price Total annual cost

Explanation / Answer

Prepare incremental analysis :

Make Buy Net income increase (decrease) Direct materials 103474 103474 Direct labour 133000 133000 Variable overhead costs 91770 91770 Fixed manufacturing costs 0 0 Purchase price 354312 (354312) Total annual cost 328244 354312 (26068)

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