Cost Analysis for Make-or-Buy Decision: Sailsport purchases sails and produces sailboats. It currently produces 1.000 sail- boats a year, operating at 70 percent of capacity. Currently, Sailsport purchases sails for $280 each, but the company is considering making sails instead. Sailsport can manufacture sails for $100 per sail for materials, $80 per sail for direct labor, and $120 per sail for overhead. Sails could be made without increasing Sailsport's capacity.

Sam Sport, the president of Sailsport, has come to you for advice. "It would cost me $300 to make the sails." he said, "but only $280 to buy. Should I continue buying them?" He added, "Materials and labor are variable costs, but variable overhead would be only $40 per sail." (Sam uses one sail per boat.)

Required: What should Sam do? Prepare a schedule to show the differential costs.