Pottery Pharoah Inc

Subject:AccountingPrice: Bought3

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Pottery Pharoah 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 63% 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 28,300 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.20 per unit. If Pottery Pharoah accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $48,200 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).) Make Buy Net Income Increase (Decrease) Direct materials $ 99333 $ i 99333 Direct labor 0 0 0 133859 133859 Variable overhead costs 84331 84331 Fixed manufacturing costs 48200 i 48200 i Purchase price 373560 373560 Total annual cost 365723 421760 56037 ( (b) Should Pottery Pharoah buy the finials? No .Pottery Pharoah should not buy the finials. ) (c) Would your answer be different in (b) if the productive capacity released by not making the finials could be used to produce income of $34,815? Yes income would increase by $ 5100