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Paused Pottery Ranch Inc. has been manufacturing its own finials for its curtain rods. The company is currently operating at 100 % of capacity, and
Paused 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 51 % 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 31,700 curtain rods per year A supplier offers to make a pair of finials at a price of $13.05 per unit. If Pottery Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $46,900 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products. (a) Prepare the incremental analysis for the decision to make or buy the finials. (Enter negative amounts using either a negative sign preceding the number es-45 or porentheses eg (45)) Net Income Make Buy Increase (Decrease) Direct materials 126800 $ 126800 Direct labor 158500 158500 Variable overhead costs 80835 80835 Fixed manufacturing costs 46900 -46900 Purchase price 413685 413685 Total annual cost 460585 366135 -94450 (b) Should Pottery Ranch buy the finials? NoPottery Ranch should not buy the finials. (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 $53,850? Yes income would increase by $ 148300 MacBook Pro
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