Teal Mountain 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 60% 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 26,000 curtain rods per year.

A supplier offers to make a pair of finials at a price of $13.25 per unit. If Teal Mountain accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $46,900 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).)

MakeBuyNet Income

Increase (Decrease)Direct materials$

$

$

Direct labor

Variable overhead costs

Fixed manufacturing costs

Purchase price

Total annual cost$

$

$

(b)

Should Teal Mountain buy the finials?

No

Yes

, Teal Mountain should

buy

not buy

the finials.

(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 $37,300?

No

Yes

, income would

increase

decrease

by $