Riggs Company purchases sails and produces sailboats. It currently produces 1,270 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Riggs purchases sails at $262 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $97 for direct materials, $88 for direct labor, and $90 for overhead. The $90 overhead is based on $78,740 of annual fixed overhead that is allocated using normal capacity. The president of Riggs has come to you for advice. It would cost me $275 to make the sails, she says, but only $262 to buy them. Should I continue buying them, or have I missed something?

If Riggs suddenly finds an opportunity to rent out the unused capacity of its factory for $77,000 per year, would your answer to part (a) change? Yes . This is because the net income will Increase by $