# wiley unit 5.xlsx - E7-5 Use incremental analysis for...

• sahmof6
• 40
• 73% (22) 16 out of 22 people found this document helpful

This preview shows page 1 - 6 out of 40 pages.

E7-5 Use incremental analysis for make-or-buy decision Pottery Ranch Inc. has been manufacturing its own finials for its curtain rods. The com variable manufacturing is charged to production at the rate of 70% of direct labor cost. Th per unit to make a pair of finials are \$4 and \$5, respectively. Normal production is 30,000 A supplier offers to make a pair of finials at a price of \$12.95 per unit. If Pottery Ranch costs will be eliminated, but the \$45,000 of fixed manufacturing overhead currently being other products. Instructions (a) Prepare the incremental analysis for the decision to make or buy the finials. (b) Should Pottery Ranch buy the finials? (c ) Would your answer be different in (b) if the productive capacity released by not mak of \$20,000. NOTE: Enter a number in cells requesting a value; enter either a number or a formu (a) Prepare the incremental analysis for the decision to make or buy the finials. (b) Should Pottery Ranch buy the finials?
(c ) Would your answer be different in (b) if the productive capacity released by not mak the finials could be used to produce income of \$20,000.
Make Buy Total annual cost (above) Value Value Value Opportunity cost Value Value Total cost ? ? ? After you have completed E7-5, consider the following additional question. 1. Assume that the direct materials and direct labor cost per unit to make the finials ar What impact do these changes on your analysis and the decision to make-or-buy th Net income Increase (Decrease)
mpany is currently operating at 100% of capacity, and he direct materials and the direct labor cost 0 curtain rods per year. h accepts the supplier's offer, all variable manufacturing charged to the finials will have to be absorbed by king the finials could be used to produce income ula in cells with a "?" . king
re \$4.75 and \$5.50, respectively. he finials?
E7-8 Prepare incremental analysis concerning make-or-buy decision. Innova uses 1.000 units of the component IMC2 every month to manufacture one of its p manufacture the components are as follows: Direct materials \$65.00 Direct labor 45.00 Overhead 126.50 Total 236.50 Overhead costs include variable material handling costs of \$6.50, which are applied to p costs. The remainder of the overhead costs are applied on the basis of direct labor dolla 40% fixed costs. A vendor has offered to supply the IMC2 component at a price of \$200 Instructions (a) Should Innova purchase the component from the outside vendor if Innova's capac (b) Should Innova purchase the component from the outside vendor if it can use its fa another product? What information will Innova need to make an accurate decision (c ) What are the qualitative factors that Innova will have to consider when making its d NOTE: Enter a number in cells requesting a value; enter either a number or a form