Prepare an incremental analysis to decide

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Pottery Ranch 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 69% of direct labor cost. The direct materials and direct labor cost per unit to make a pair of finials are $3.67 and $4.68, respectively. Normal production is 25,400 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.21 per unit. If Pottery Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $45,000 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products.

Problem 1: Prepare an incremental analysis to decide if Pottery Ranch should buy the finials.

Reference no: EM132740494

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