Exercise 12-7 Pina Company purchases sails and produces sailboats. It cumenitly

Question

Exercise 12-7 Pina Company purchases sails and produces sailboats. It cumenitly produces 1,200 sailboats per yeax capacity to mandfacture the sails instead. The a manufacturing cest per sal would be $94.05 for direct materials, $86.30 for direct labo, and $90 for overhead. The $90 overhead is tased on s 257 each, but the company s considening sing the The presidert of Pina has come toyinfor advice·"Rwad cost me S27035 to make the san.. she sms,"but Orly $257 t, buy thes. Shedd t carteue bons nen, or have i slid aonetner Your answer is correct Prepare a per unit analysis of the dfferential costs. (Round answers to 2 decimal places e.g 15.25. Iamount decreeses net income the enter the a e.g. (45) sgther a native sgn prec te Variable overhead Purchase price Should Pea make or buy the sals 0

Explanation / Answer

Solution:

Total fixed overhead = $78,000

Fixed overhead rate per unit based on normal capacity = $78,000 / 1200 = $65

Variable overhead per unit for Salls = $90 - $65 = $25

As cost of buying option is higher than make option, therefore Pina should make the salls.

Solution 2:

Answer in Part a will change as net income will increase by $15,320 on buying Salls from outside supplier.

Per unit Analysis of Differential Cost - Pina Company Particulars Make Salls Buy Salls Net Income Increase (Decrease) Costs: Direct material $94.05 $0.00 $94.05 Direct Labor $86.30 $0.00 $86.30 Variable overhead $25.00 $0.00 $25.00 Purchase price $0.00 $257.00 -$257.00 Total Cost $205.35 $257.00 -$51.65

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.