Pharoah Company purchases sails and produces sailboats. It currently produces 1,220 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Pharoah purchases sails at $ 261 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $ 96 for direct materials, $ 80 for direct labor, and $ 90 for overhead. The $ 90 overhead is based on $ 78,080 of annual fixed overhead that is allocated using normal capacity. The president of Pharoah has come to you for advice. It would cost me $ 266 to make the sails, she says, but only $ 261 to buy them. Should I continue buying them, or have I missed something?

(a) Your answer is partially correct. Prepare a per unit analysis of the differential costs. (Enter negative amounts using either a negative sign preceding the number e.g.-45 or parentheses e.g. (45).) Net Income Increase (Decrease) Make Sails Buy Sails Direct material 96 i $ i ta $ 96 Direct labor 80 i 80 Variable overhead 90 90 Purchase price 261 -261 Total unit cost $ $ HA 266 $ ta 261 i $ 5