Sheridan 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 66% 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 34,300 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.05 per unit. If Sheridan Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $45,700 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products. (a)
Sheridan 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 66% 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 34,300 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.05 per unit. If Sheridan Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $45,700 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products. (a)
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter11: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 3CMA: Aril Industries is a multiproduct company that currently manufactures 30,000 units of Part 730 each...
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![Sheridan 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 66% 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 34,300 curtain rods per year.
A supplier offers to make a pair of finials at a price of $13.05 per unit. If Sheridan Ranch accepts the supplier's offer, all
variable manufacturing costs will be eliminated, but the $45,700 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 e.g. -45 or parentheses e.g. (45).)
Direct
materials.
Direct labor
Variable
overhead
costs
Fixed
manufacturing
costs
Purchase
price
Total annual
cost
(b)
$
(c)
$
Should Sheridan Ranch buy the finials?
Make
,Sheridan Ranch should
◆, income would
$
◆ by $
$
the finials.
Buy
$
$
Would your answer be different in (b) if the productive capacity released by not making the finials could be used to
produce income of $34,200?
Net Income
Increase (Decreas](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F515c4078-d574-4da9-8644-21b4814f7a9d%2Ff24b755d-0766-40ea-87d4-830542493e1c%2Fqu1qx3m_processed.png&w=3840&q=75)
Transcribed Image Text:Sheridan 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 66% 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 34,300 curtain rods per year.
A supplier offers to make a pair of finials at a price of $13.05 per unit. If Sheridan Ranch accepts the supplier's offer, all
variable manufacturing costs will be eliminated, but the $45,700 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 e.g. -45 or parentheses e.g. (45).)
Direct
materials.
Direct labor
Variable
overhead
costs
Fixed
manufacturing
costs
Purchase
price
Total annual
cost
(b)
$
(c)
$
Should Sheridan Ranch buy the finials?
Make
,Sheridan Ranch should
◆, income would
$
◆ by $
$
the finials.
Buy
$
$
Would your answer be different in (b) if the productive capacity released by not making the finials could be used to
produce income of $34,200?
Net Income
Increase (Decreas
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