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 70% 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 30,000 curtain rods per year.

A supplier offers to make a pair of finials at a price of $12.95 per unit. If Pottery Ranch accepts the suppliers offer, all variable manufacturing costs will be eliminated, but the $45,000 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 e.g. -45 or parentheses e.g. (45).)

		Make		Buy		Net Income Increase (Decrease)
Direct materials		$enter a dollar amount		$enter a dollar amount		$enter the difference between the two previous amounts in the row
Direct labor		enter a dollar amount		enter a dollar amount		enter the difference between the two previous amounts in the row
Variable overhead costs		enter a dollar amount		enter a dollar amount		enter the difference between the two previous amounts in the row
Fixed manufacturing costs		enter a dollar amount		enter a dollar amount		enter the difference between the two previous amounts in the row
Purchase price		enter a dollar amount		enter a dollar amount		enter the difference between the two previous amounts in the row
Total annual cost		$enter a total amount		$enter a total amount		$enter a total amount

(b)

Should Pottery Ranch buy the finials?

select between yes and no YesNo, Pottery Ranch should select whether the company should buy the finials or not not buybuy the finials.