Question

Jobs, Inc. has recently started the manufacture of Tri-Robo, a three-wheeled robot that can scan a home for fires and gas leaks and then transmit this information to a smartphone. The cost structure to manufacture 19,700 Tri-Robos is as follows. Cost Direct materials ($52 per robot) $1,024,400 Direct labor ($40 per robot) 788,000 Variable overhead ($7 per robot) 137,900 Allocated fixed overhead ($30 per robot) 591,000     Total $2,541,300 Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $119 per unit or $2,344,300. Following are independent assumptions.

Assume that $405,000 of the fixed overhead cost can be avoided. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Make Buy Net Income Increase (Decrease) Direct materials $enter direct materials in dollars $enter direct materials in dollars $enter direct materials in dollars Direct labor enter direct labor in dollars enter direct labor in dollars enter direct labor in dollars Variable overhead enter variable overhead in dollars enter variable overhead in dollars enter variable overhead in dollars Fixed overhead enter fixed overhead in dollars enter fixed overhead in dollars enter fixed overhead in dollars Purchase price enter the purchase price in dollars enter the purchase price in dollars enter the purchase price in dollars Total annual cost $enter total annual cost in dollars $enter total annual cost in dollars $enter total annual cost in dollars Using incremental analysis, determine whether Jobs should accept this offer. The offer select an option should not be acceptedshould be accepted .

Assume that none of the fixed overhead can be avoided. However, if the robots are purchased from Tienh Inc., Jobs can use the released productive resources to generate additional income of $375,000. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Make Buy Net Income Increase (Decrease) Direct materials $enter direct materials in dollars $enter direct materials in dollars $enter direct materials in dollars Direct labor enter direct labor in dollars enter direct labor in dollars enter direct labor in dollars Variable overhead enter variable overhead in dollars enter variable overhead in dollars enter variable overhead in dollars Fixed overhead enter fixed overhead in dollars enter fixed overhead in dollars enter fixed overhead in dollars Opportunity cost enter the opportunity cost in dollars enter the opportunity cost in dollars enter the opportunity cost in dollars Purchase price enter the purchase price in dollars enter the purchase price in dollars enter the purchase price in dollars Totals $enter total amount in dollars $enter total amount in dollars $enter total amount in dollars Based on the above assumptions, indicate whether the offer should be accepted or rejected? The offer select an option should be accepted should not be accepted .

Answer 1

Assume that $405,000 of the fixed overhead cost can be avoided. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Make Buy Net Income Increase (Decrease) Direct materials 1024400 1024400 Direct labor 788000 788000 Variable overhead 137900 137900 Fixed overhead 591000 186000 405000 Purchase price 2344300 -2344300 Total annual cost 2541300 2530300 11000 Using incremental analysis, determine whether Jobs should accept this offer. The offer should be accepted .

Assume that none of the fixed overhead can be avoided. However, if the robots are purchased from Tienh Inc., Jobs can use the released productive resources to generate additional income of $375,000. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Make Buy Net Income Increase (Decrease) Direct materials 1024400 1024400 Direct labor 788000 788000 Variable overhead 137900 137900 Fixed overhead 591000 591000 0 Opportunity cost 375000 375000 Purchase price 2344300 -2344300 Totals 2916300 2935300 -19000 Based on the above assumptions, indicate whether the offer should be accepted or rejected? The offer should not be accepted .