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Prepare the incremental analysis for the decision

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Reference no: EM133143131

Question - Blossom 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 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 32,100 curtain rods per year.

A supplier offers to make a pair of finials at a price of $13.35 per unit. If Blossom Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $49,400 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products.

Required -

(a) Prepare the incremental analysis for the decision to make or buy the finials.

(b) Should Blossom Ranch buy the finials?

Reference no: EM133143131

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