Exercise 127 Pina Company purchases sails and produces sailb

Exercise 12-7 Pina Company purchases sails and produces sailboats. It cumenitly produces 1,200 sailboats per yeax capacity to mandfacture the sails instead. The a manufacturing cest per sal would be $94.05 for direct materials, $86.30 for direct labo, and $90 for overhead. The $90 overhead is tased on s 257 each, but the company s considening sing the The presidert of Pina has come toyinfor advice·\"Rwad cost me S27035 to make the san.. she sms,\"but Orly $257 t, buy thes. Shedd t carteue bons nen, or have i slid aonetner Your answer is correct Prepare a per unit analysis of the dfferential costs. (Round answers to 2 decimal places e.g 15.25. Iamount decreeses net income the enter the a e.g. (45) sgther a native sgn prec te Variable overhead Purchase price Should Pea make or buy the sals 0

Solution

Solution:

Total fixed overhead = $78,000

Fixed overhead rate per unit based on normal capacity = $78,000 / 1200 = $65

Variable overhead per unit for Salls = $90 - $65 = $25

As cost of buying option is higher than make option, therefore Pina should make the salls.

Solution 2:

Answer in Part a will change as net income will increase by $15,320 on buying Salls from outside supplier.

Per unit Analysis of Differential Cost - Pina Company
Particulars	Make Salls	Buy Salls	Net Income Increase (Decrease)
Costs:
Direct material	$94.05	$0.00	$94.05
Direct Labor	$86.30	$0.00	$86.30
Variable overhead	$25.00	$0.00	$25.00
Purchase price	$0.00	$257.00	-$257.00
Total Cost	$205.35	$257.00	-$51.65