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Wildhorse Company purchases sails and produces sailboats. It currently produces 1,290 sailboats per year, operating at normal capacity, which is about 80% of full capacity.
Wildhorse Company purchases sails and produces sailboats. It currently produces 1,290 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Wildhorse purchases sails at $253 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $92 for direct materials, $86 for direct labor, and $90 for overhead. The $90 overhead is based on $78,690 of annual fixed overhead that is allocated using normal capacity. The president of Wildhorse has come to you for advice. "It would cost me $268 to make the sails," she says, but only $253 to buy them. Should I continue buying them, or have I missed something?" (a) Prepare a per unit analysis of the differential costs. (Enter negative amounts using either a negative sign preceding the number eg. -45 or parentheses e.g. (45).) Net Income Increase (Decrease) Make Sails Buy Sails Direct material $ $ $ Direct labor Variable overhead Purchase price Total unit cost $ $ $ Should Wildhorse make or buy the sails? Wildhorse should the sails
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