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E 7 . 7 ( LO 3 ) , E Riggs Company purchases sails and produces sailboats. It currently produces 1 , 2 0 0
ELO E Riggs Company purchases sails and produces sailboats. It currently produces sailboats per year, operating at normal capacity, which is about of full capacity. Riggs purchases sails at $ each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $ for direct materials, $ for direct labor, and $ for overhead. The $ overhead is based on $ of annual xed overhead that is allocated using normal capacity.The president of Riggs has come to you for advice. It would cost me $ to make the sails, she says, but only $ to buy them. Should I continue buying them, or have I missed something?Instructionsa. Prepare a per unit analysis of the dierential costs. Briey explain whether Riggs should make or buy the sails.b If Riggs suddenly nds an opportunity to rent out the unused capacity of its factory for $ per year, would your answer to part a change? Briey explain.c Identify three qualitative factors that should be considered by Riggs in this makeorbuy decision.
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