Exercise 20-05 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 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 $13.20 per unit. If Pottery 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 finals will have to be absorbed by other products. Prepare the incremental analysis for the decision to make or buy the finals. (Enter negative amounts using either a negative sign preceding the number e.g.-45 or parentheses .g. (45).) Net Income Increase (Decrease) Make Buy Direct materials Direct labor Variable overhead costs Fixed manufacturing costs Purchase price Total annual cost (b) Should Pottery Ranch buy the finials? 4. Pottery Ranch should the finals. Would your answer be different in (b) of the productive capacity released by not making the finals could be used to produce income of $24,6507 6. income would by s Exercise 20-14 Johnson Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing. New Machine $25,100 Original purchase cost Accumulated depreciation Estimated annual operating costs Remaining useful life Current Machine $14,900 $5,700 $24,700 5 years $19,500 5 years If sold now, the current machine would have a salvage value of $10,100. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after 5 years. Prepare an incremental analysis to determine whether the current machine should be replaced. (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Retain Machine Replace Machine Net Income Increase (Decrease) Operating costs New machine cost Salvage value (old) Total The current machine should be Click if you would like to show Work for this questions Goen Show Work
