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topjm [15]
3 years ago
15

Riggs Company purchases sails and produces sailboats. It currently produces 1,300 sailboats per year, operating at normal capaci

ty, which is about 80% of full capacity. Riggs purchases sails at $258 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $93 for direct materials, $83 for direct labor, and $90 for overhead. The $90 overhead is based on $78,000 of annual fixed overhead that is allocated using normal capacity. The president of Riggs has come to you for advice. "It would cost me $266 to make the sails," she says, "but only $258 to buy them. Should I continue buying them, or have I missed something?"
Business
2 answers:
goldenfox [79]3 years ago
7 0

Answer: The president of Riggs is missing something. The cost of making the sails is $176 and therefore costs $82 lesser to make a sail rather than buy one.

Explanation:

Given the following ;

Direct material per sail = $93

Direct labor per sail = $83

Kindly Note the following :

Sail is manufactured while operating at 80% of full capacity

Overhead of $90 is based on annual fixed overhead while operating at normal capacity (that is 80% of full capacity). The implication his, to utilize the remaining 20%, no fixed overhead will have to be incurred.

All that is needed to make the sail will be the variable cost;

Direct material = $90

Direct labor = $83

Total variable cost = $(93 + 83) = $176

The president of Riggs has incorrectly included $90 overhead into the manufacturing cost of the sails.

Therefore, total manufacturing cost of the sails is $176 and not $266.

Therefore it costs $82 lesser to make a sail.

mr_godi [17]3 years ago
5 0

Answer:

The president of Riggs has missed something.

She should make the Sail instead of buying because its cheaper to manufacture than purchasing it outside.

Explanation:

<u>Cost of Manufacturing the Sails:</u>

Direct materials        $93

Direct Labor              $83

Total                         $173

The president of Riggs has included the $90 overhead  based on $78,000 of annual fixed overhead that is allocated using normal capacity in the cost of manufacturing the sail which is incorrect.

Riggs Company is operating at 80 % of full capacity, hence utelizing the 20% excess capacity would not expand its fixed costs.

Thus said the current fixed cost are irrelevent for this decison and would be incurred whether or not Riggs Company utilizes the excess capacity

<u>Conclusion:</u>

The cost of making the sail is $173 which is lower than the cost of buying them at $ 258.

I would advise The president of Riggs to make the sail by utilizing the excess capacity since its cheaper than purchasing it outside.

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4 0
3 years ago
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(2) Basic EPS for 2019

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3 years ago
Big Game, Inc., is a manufacturer of hunting supplies. The following is a summary of the company's annual payroll-related costs:
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Answer:

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Explanation:

(a) Big Game's total payroll- Related costs for the year:

= wages and salaries expense + payroll taxes + workers compensation premiums + group health insurance premium + contributions to employees pension plan

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= wages and salaries earned - Amount withheld from the employees pay

= $7,430,000 - $2,200,000

= $5,230,000

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= Total payroll related costs ÷ wages and salaries expense

= $9,435,000 ÷ $7,430,000

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8 0
3 years ago
Answer following question with true or false and explain.A firm's profit margin is 5%, its debt/assets ratio is 56%, and its div
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8 0
2 years ago
Presented below is information related to Bobby Engram Company.
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Answer:

A. $ 98,210

B1. Cost to retail percentage 60%

B2. Cost to retail percentage 65.73 %

B3. Cost to retail percentage 58 %

B4. Cost to retail percentage 63.33 %

Explanation:

A. Computation for the ending inventory at retail

Inventory at Retail

Beginning Inventory $ 100,000

Purchase ( Net ) $ 200,000

Net Markup $ 10345

Less Net Markdown ($26,135)

Less Sales Revenue ($ 186,000)

Ending Inventory $ 98,210

Therefore the ending inventory at retail will be $ 98,210

B1) Computation for a cost-to-retail percentage

Excluding both markups and markdowns.

Cost to Retail Percentage

Excluding both Markup and Markdown

Cost Retail

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Purchase (Net) $ 122,000 $ 200,000

Total $ 180,000 $ 300,000

Cost to retail percentage = $180,000/$300,000 Cost to retail percentage = 60%

B2. Computation for a cost-to-retail percentage Excluding Markups but Including Markdown

Cost Retail

Beginning Inventory $ 58,000 $ 100,000

Purchase (Net) $ 122,000 $ 200,000

Less Mark down ($ 26,135)

Total $ 180,000 $273,865

Cost to retail percentage= $180,000 /$ 273,865*100

Cost to retail percentage= 65.73 %

B3. Computation for a cost-to-retail percentage Excluding Markdowns but including Markups

Cost Retail

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Purchase Net $ 122,000 $ 200,000

Add Net Markups $ 10,345

Total $180,000 $ 310,345

Cost to retail percentage = $180,000 / $ 310,345*100

Cost to retail percentage = 58 %

B4. Computation for a cost-to-retail percentage Including both Markups and Markdown

Cost Retail

Beginning Inventory $58,000 $100,000

Purchase Net $ 122,000 $ 200,000

Net Markups $ 10,345

Less Net Mardown ($26,135)

Total $ 180,000 $ 284,210

Cost to retail percentage = $ 180,000/ $ 284,210 × 100

Cost to retail percentage = 63.33 %

Therefore the cost-to-retail percentage are:

B1. Cost to retail percentage 60%

B2. Cost to retail percentage 65.73 %

B3. Cost to retail percentage 58 %

B4. Cost to retail percentage 63.33 %

8 0
2 years ago
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