exercise 23-05

Splish Brothers 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 54 and 55, respectively. Normal production is 25,400 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.30 per unit. If Splish Brothers accepts the suppler's offer, all variable manufacturing costs will be eliminated, but the 540,400 of fixed manufacturing overhead currently being charged to the finals will have to be absorbed by other products. Buy Prepare the incremental analysis for the decision to make or buy the finals. (Enter negative amounts using either a negative sign preceding the number eg. -45 or parentheses e.g. (45).) Net Income Make Increase (Decrease) Direct materials Direct labor Variable overhead costs Fixed manufacturing costs Purchase price Total annunl cost (b) Should Splish Brothers buy the finials? the finials. Splish Brothers should (C) Would your answer be different in (b) if the productive capacity released by not making the finials could be used to produce income of $29,390? Income would by $