Riggs Company purchases sails and produces sailboats. It currently produces 1,200 sailboats per year, operating at normal capacity, which is about 80 % of full capacity. Riggs purchases sails at $ 250 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $ 100 for direct materials, $ 80 for direct labor, and $ 90 for overhead. The $ 90 overhead includes $ 78,000 of annual fixed overhead that is allocated using normal capacity.

The president of Riggs has come to you for advice. It would cost me $ 270 to make the sails, she says, but only $ 250 to buy them. Should I continue buying them, or have I missed something?

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