Reference no: EM133150470

Question - Crane Company purchases sails and produces sailboats. It currently produces 1,240 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Crane purchases sails at $255 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $91 for direct materials, $85 for direct labor, and $90 for overhead. The $90 overhead is based on $78,120 of annual fixed overhead that is allocated using normal capacity. The president of Crane has come to you for advice. "It would cost me $266 to make the sails," she says, "but only $255 to buy them. Should continue buying them, or have missed something?"