Gibbs Company purchases sails and produces sailboats. It currently produces 1,223 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Gibbs purchases sails at $273.00 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $91.40 for direct materials, $82.00 for direct labor, and $100 for overhead. The $100 overhead includes a component of fixed overhead that is based on $78,070 of annual fixed overhead allocated using normal capacity. The president of Gibbs has come to you for advice. It would cost me $273.40 to make the sails, she says, but only $273.00 to buy them. Should I continue buying them, or have I missed something?

Prepare a per unit analysis of the differential costs. (Round answers to 2 decimal places, e.g. 15.25. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g.

make sails buy sails net income increase(decrease)

direct material

direct labor

variable overhead

purchase price

total unit cost

should gibbs make or buy the sails