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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.

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.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
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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