CHAPTER $20$ HOMEWORK

Question $2$

Oriole 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 $69\%$ 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 $25,400$ curtain rods per year.

A supplier offers to make a pair of finials at a price of $$13\mathrm{.}20$ per unit. If Oriole Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $$45,000$ 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.