60.1K

Verified Solution

Link Copied!

Exercise 7-7 Riggs Company purchases sails and produces sailboats. It currently produces 1,300 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Riggs purchases sails at $261 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $90.46 for direct materials, $87.51 for direct labor, and S90 for overhead. The 90 overhead includes $78,400 of annual fixed overhead that is allocated using normal capacity The president of Riggs has come to you for advice. "It would cost me $267.97 to make the sails," she says, "but only $261 to buy them. Should I continue buying them, or have I missed something?" Prepare a per unit analysis of the differential costs. (Round answers to 2 decimal places, e.g. 15.25. Enter negative amounts using either a negative sign preceding the number e.g -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 Riggs make or buy the sails? Riggs should the sails If Riggs suddenly finds an opportunity to rent out the unused capacity of its factory for78,000 per year, would your answer to part (a) change? is is because the net income will by $ Yes No u would like to Show Work for this question: Open Show Work

Answer & Explanation Solved by verified expert

See Answer