Reference no: EM132515462

Point 1: Gibbs Company purchases sails and produces sailboats. It currently produces 1,210 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Gibbs purchases sails at $256.00 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $90.00 for direct materials, $87.00 for direct labor, and $100 for overhead. The $100 overhead is based on $78,190 of annual fixed overhead that is allocated using normal capacity.

Point 2: The president of Gibbs has come to you for advice. "It would cost me $277.00 to make the sails," she says, "but only $256.00 to buy them. Should continue buying them, or have I missed something?"

Question 1: 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).)