Oriole 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, Oriole purchases sails at $259 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $93 for direct materials, $85 for direct labor, and $90 for overhead. The $90 overhead is based on $78,000 of annual fixed overhead that is allocated using normal capacity. The president of Oriole has come to you for advice. "It would cost me $268 to make the sails," she says, "but only $259 to buy them. Should I continue buying them, or have I missed something?"

Oriole 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, Oriole purchases sails at $259 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $93 for direct materials, $85 for direct labor, and $90 for overhead. The $90 overhead is based on $78,000 of annual fixed overhead that is allocated using normal capacity. The president of Oriole has come to you for advice. "It would cost me $268 to make the sails," she says, "but only $259 to buy them. Should I continue buying them, or have I missed something?"

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter8: Tactical Decision-making And Relevant Analysis

Section: Chapter Questions

Problem 54P

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