Question

# Pottery Ranch Inc. has been manufacturing its own finials for its curtain rods. The company is...

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 \$4 and \$5, 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 the incremental analysis for the decision to make or buy the finials. (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) \$enter direct materials in dollars \$enter direct materials in dollars \$enter direct materials in dollars enter direct labor in dollars enter direct labor in dollars enter direct labor in dollars enter variable overhead costs in dollars enter variable overhead costs in dollars enter variable overhead costs in dollars enter fixed manufacturing costs in dollars enter fixed manufacturing costs in dollars enter fixed manufacturing costs in dollars enter the purchase price in dollars enter the purchase price in dollars enter the purchase price in dollars \$enter total annual cost in dollars \$enter total annual cost in dollars \$enter total annual cost in dollars

(b)

Should Pottery Ranch buy the finials?

 select between Yes and No YesNo , Pottery Ranch should select an option buynot buy 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 \$36,920?

 select between Yes and No NoYes , income would select between increase and decrease increasedecrease by \$enter a dollar amount

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