Riggs company purchases sails ans produces sailboats. It currently produces 1,300 sailboats per year, operating at normal capacity,which is about 80% of full capacity. Riggs 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 $90.46 for direct materials, $87.51 for direct labor, and $90 for overhead. The $90 overhead includes $78,400 of annual fixed overhead that is allocated using normal capacity.

the president of Riggs has come to you for advice. "It would cost me $267.97 to make the sails," she says, "but only $261 to buy them. Should I continue buying them or have I missed something?"

Prepare a per unit analysis of the differential costs.

Should Riggs make or buy the sails?

If Riggs suddenly finds an opportunity to rent out the unused capacity of its factory for $78,000 per year, would your answer to Part (a) change?

Purchase price This is because the income by