Riggs Company purchases sails and produces sailboats. It currently produces 1,250 sailboats per year, operating at normal capacity, which is about 80 % of full capacity. Riggs purchases sails at $ 262 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $ 94.17 for direct materials, $ 84.43 for direct labor, and $ 90 for overhead. The $ 90 overhead includes $ 78,100 of annual fixed overhead that is allocated using normal capacity.
The president of Riggs has come to you for advice. “It would cost me $ 268.60 to make the sails,” she says, “but only $ 262 to buy them. Should I continue buying them, or have I missed something?”
Prepare a per unit analysis of the differential costs. (Round answers to 2 decimal places, e.g. 15.25. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)