E$20\mathrm{.}7($LO $3),$ E Riggs Company purchases sails and produces sailboats. It currently produces $1,200$

sailboats per year, operating at normal capacity, which is about $80\%$ of full capacity. Riggs purchases

sails at $$250$ each, but the company is considering using the excess capacity to manufacture the sails

instead. The manufacturing cost per sail would be $$100$ for direct materials, $$80$ for direct labor, and

$$90$ for overhead. The $$90$ overhead is based on $$78,000$ of annual fixed overhead that is allocated using

normal capacity.

The president of Riggs has come to you for advice. $"$It would cost me $$270$ to make the sails," she

says, "but only $$250$ to buy them. Should I continue buying them, or have I missed something?"

Instructions

a$.$ Prepare a per unit analysis of the differential costs. Briefly explain whether Riggs should make or

buy the sails.

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? Briefly explain.

c$.$ Identify three qualitative factors that should be considered by Riggs in this make$-$or$-$buy decision.

$($CGA adapted$)$