E20-5

A. Prepare an incremental analysis for the decision to make or buy the finals

B. Should pottery ranch buy the final?

Ullng incremental analysis, determine whether Klean Fiber should accept the Army'soffer. E20-5 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 70% of direct labor cost. The direct materials and direct cost per unit to make a pair of finials are $4 and $5, respectively. Normal pro duction is 30,000 curtain rods year. A supplier offers to make a pair of finials at a price of $12.95 per unit If accepts the supplier's offer, variable Ranch $45,000 of fixed manufacturing manufacturing costs will be eliminated, but the to be absorbed overhead currently being charged to by products. will have