FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Carla Vista Company purchases sails and produces sailboats. It currently produces 1,260 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Carla Vista purchases sails at $254 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $95 for direct materials, $80 for direct labor, and $90 for total manufacturing overhead. The $90 total manufacturing overhead includes $78,120 of annual fixed overhead that is allocated using normal capacity. The president of Carla Vista has come to you for advice. "It would cost me $265 to make the sails," she says, "but only $254 to buy them. Should I continue buying them, or have I missed something?" (a) Prepare a per unit analysis of the differential costs. (Enter negative amounts using either a negative sign preceding the number e.g.-45 or parentheses e.g. (45).) Make Sails Buy Sails Net Income Increase (Decrease) Direct material $ Direct labor Variable overhead Purchase price Total unit cost $ Should Carla Vista make or buy the sails? Carla Vista should the sails.
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Transcribed Image Text:Carla Vista Company purchases sails and produces sailboats. It currently produces 1,260 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Carla Vista purchases sails at $254 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $95 for direct materials, $80 for direct labor, and $90 for total manufacturing overhead. The $90 total manufacturing overhead includes $78,120 of annual fixed overhead that is allocated using normal capacity. The president of Carla Vista has come to you for advice. "It would cost me $265 to make the sails," she says, "but only $254 to buy them. Should I continue buying them, or have I missed something?" (a) Prepare a per unit analysis of the differential costs. (Enter negative amounts using either a negative sign preceding the number e.g.-45 or parentheses e.g. (45).) Make Sails Buy Sails Net Income Increase (Decrease) Direct material $ Direct labor Variable overhead Purchase price Total unit cost $ Should Carla Vista make or buy the sails? Carla Vista should the sails.
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