Gibbs company purchases sails and produces sailboats it

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Gibbs Company purchases sails and produces sailboats. It currently produces 1,258 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Gibbs purchases sails at $270.00 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $95.60 for direct materials, $82.00 for direct labor, and $100 for overhead. The $100 overhead is based on $78,400 of annual fixed overhead that is allocated using normal capacity. The president of Gibbs has come to you for advice. "It would cost me $277.60 to make the sails," she says, "but only $270.00 to buy them. Should I continue buying them, or have I missed something?"

Reference no: EM13569535

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