Prepare an incremental analysis to decide if Pottery Ranch should buy the finial
ID: 2527296 • Letter: P
Question
Prepare an incremental analysis to decide if Pottery Ranch should buy the finials. (Round answers to O decimal places, e.g. 1250. Enter nega sign preceding the number e.g. -45 or parentheses e.g. (45).) Net Income Increase (Decrease) Make Buy Direct materials Direct labor Variable overhead costs Fixed manufacturing costs Purchase price Total annual cost Should Pottery Ranch buy the finials? ,Pottery Ranch should the finials. Would your answer be different in (b) if the productive capacity released by not making the finials could be used to produce income of $33,568? Y, income would by $Explanation / Answer
Solution a:
Solution b:
Pottery Ranch should not buy the finials because cost will increase by $26,068 if finials are purchased.
Solution c:
Net loss from buying Finials = $26,068
Income from utilizing the released productive capacity = $33,568
Therefore Net Income if Pottery Ranch buy the finials = $33,568 -$26,068 = $7,500
Therefore, if productive capacity released by not making the finials could be used then Finials shoud be purchased because income would increase by $7,500.
Incremental Analysis Particulars Make Buy Net Income Increase/ (Decrease) Direct material $103,474.00 $0.00 $103,474.00 Direct Labor $133,000.00 $0.00 $133,000.00 Variable overhead $91,770.00 $0.00 $91,770.00 Fixed manufacturing costs $0.00 $0.00 $0.00 Purchase Price (26,600*$13.32) $0.00 $354,312.00 -$354,312.00 Income / (Loss) $328,244.00 $354,312.00 -$26,068.00