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 69% 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 25,400 curtain rods per year.

A supplier offers to make a pair of finials at a price of $13.20 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 an incremental analysis to decide if Pottery Ranch should buy the finials. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

b)

Should Pottery Ranch buy the finials?

____, Pottery Ranch should ____ the finials. 1. Yes or No 2. Not Buy or Buy

(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 $24,650?

____, income would ________ by $ 1. Yes or No 2. Increase or Decrease

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 69% 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 25,400 curtain rods per year. A supplier offers to make a pair of firiiats at a price of $ 13 20 per unit. If Pottery Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $45,000 of foved 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 finisks (Enter negative amounts using either a negative in preceding the numberes-45 or parentheses: (451) Net Income Increase (Decrease) Make Buy Direct materials S Direct labor Variable overhead coats Fixed manufacturing costs Purchase price Total anual cost $ $ 10 Should Pottery Ranch by the Pottery Ranch should the final