Pottery Ranch Inc has been manufacturing its own finials for

Last updated: 3/5/2023

Pottery Ranch 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 62 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 30 400 curtain rods per year A supplier offers to make a pair of finials at a price of 13 15 per unit If Pottery Ranch accepts the supplier s offer all variable manufacturing costs will be eliminated but the 43 100 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 eg 45 or parentheses eg 45 Direct materials Direct labor Variable overhead costs Fixed manufacturing costs Purchase price Total annual cost b 5 c S Make Should Pottery Ranch buy the finials Pottery Ranch should 121600 152000 94240 1 12 1 0 367840 S the finials Buy 399760 150000 0 13 15 43100 594 860 5 Net Income Increase Decrease 278160 0 94240 43100 415500 Would your answer be different in b if the productive capacity released by not making the finials could be used to produce income of 38 620