(B) ONLY

If Riggs suddenly finds an opportunity to rent out the unused capacity of its factory for $77,000 per year, would your answer to part (a) change?

Yes/No. This is because the net income will Decrease/Increase by $ .

Riggs Company purchases sails and produces sailboats. It currently produces 1,220 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Riges 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 $91 for direct materials, $83 for direct labor, and $90 for overhead. The $90 overhead is based on $78,080 of annual fixed overhead that is allocated using normal capacity. The president of Riggs has come to you for advice. "It would cost me $264 to make the sails," she says, "but only $258 to buy them. Should I continue buying them, or have I missed something?" (a) Your Answer Correct Answer Your answer is correct. Prepare a per unit analysis of the differential costs. (Enter negative amounts using either a negative sign preceding the number eg.-45 or parentheses eg. (45).) Make Sails Buy Sails Net Income Increase (Decrease) Direct material 91.00 91.00 Direct labor 83.00 i 83.00 HONE Variable overhead 26 26 Purchase price TOO!! 258 -258 0!! Total unit cost 200 258 i -58 Should Riggs make or buy the sails? Riggs should make the sails. eTextbook and Media Assistance Used Solution Attempts: 3 of 3 used (b) If Riggs suddenly finds an opportunity to rent out the unused capacity of its factory for $77,000 per year, would your answer to part (a) change? This is because the net income will by $