Pottery Ranch Inc. has been manufacturing its own finials for its curtain rods.

Question

Pottery Ranch Inc. has been manufacturing its own finials for its curtain rods. The company is currently operating at 1009 o capacity, and variable manufacturing overhead is charged to production at the rate of 61% of direct lebor cost. The direct materials and direct labor cost per unit to make a pair of finials are $3.73 and $4.69, respectively. Normal production is 33,300 curtain rods per year. A supplier offers to make a pair of finials at a price of $12.90 per unit. If Pottery Ranch accepts the supplier's offer, all varlable manufacturing costs will be eliminated, but the $49,200 of ixed manufacturing overhead currenty being charged to the finials will have to be absorbed by other products Prepare an incremental analysis to decide if Pottery Ranch should buy the finials. (Round answers to 0 decimal places, e.g. 125o. Enter negative amounts using either a negative sign preceding the number e.g.-45 or parentheses e.g Net Income Increase (Decrease) Make Buy Direct materials Direct labor Variable overhead costs Fiked manufacturing costs Purchase price Total annual cost Should Pottery Ranch buy the finials? Pottery Ranch should the finials, Would your answer be different in (b) if the productive capacity released by not making the finials could be used to produce income of $60,716? income would by $

Explanation / Answer

Make Buy Net Income Increase (Decrease) Direct materials 124209 124209 Direct labor 156177 156177 Variable overhead costs 95268 95268 Fixed manufacturing costs 49200 49200 0 Purchase price 429570 -429570 Total annual cost 424854 478770 -53916 b No, Pottery Ranch should not buy the finials c Yes, income would increase by $ $6800 (60716-53916)

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