$2.$ Should Pottery Ranch continue to make its finials or buy them from Finer Finials?

Show your work with an incremental analysis.

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 $80\%$ of direct labor cost. The direct

materials and direct labor cost per unit to make a pair of finials are $$4\mathrm{.}25$ and $$4\mathrm{.}75,$

respectively. Normal production is $40,000$ curtain rods per year. Each rod contains

a pair of finials.

A supplier, Finer Finials, offers to make a pair of finials at a price of $$13\mathrm{.}00$ per pair.

If Pottery Ranch accepts the supplier$$s offer, all variable manufacturing costs will be

eliminated, but only $25\%$ of the $$50,000$ of fixed manufacturing overhead currently

being charged to the finials will be avoided by outsourcing the finials.