If gibbs suddenly finds an opportunity to rent out the

Reference no: EM13581106

Gibbs Company purchases sails and produces sailboats. It currently produces 1,239 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Gibbs purchases sails at $252.00 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $94.70 for direct materials, $87.00 for direct labor, and $100 for overhead. The $100 overhead is based on $78,220 of annual fixed overhead that is allocated using normal capacity.
The president of Gibbs has come to you for advice. "It would cost me $281.70 to make the sails," she says, "but only $252.00 to buy them. Should I continue buying them, or have I missed something?"

Prepare a per unit analysis of the differential costs. (Round answers to 2 decimal places, e.g. 15.25. 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 Gibbs make or buy the sails?

BuyMake

If Gibbs suddenly finds an opportunity to rent out the unused capacity of its factory for $77,950 per year, would your answer to part (a) change?

Reference no: EM13581106

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