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 21,300 Tri-Robos is as follows.

		Cost
Direct materials ($51 per robot)		$1,086,300
Direct labor ($39 per robot)		830,700
Variable overhead ($5 per robot)		106,500
Allocated fixed overhead ($28 per robot)		596,400
Total		$2,619,900

Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $113 per unit or $2,406,900.

Following are independent assumptions.

(a1)

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.

Answer 1

Answer
1	Incremental Analysis:
		Make	Buy	Net Income Increase / (Decrease)
		A	B	A-B
	Direct Materials	$               1,086,300		$                           1,086,300
		(21300*51)
	Direct Labor	$                  830,700		$                              830,700
		(21300*39)
	Variable Overhead	$                  106,500		$                              106,500
		(21300*5)
	Fixed Overhead	$                  596,400	$                 191,400	$                              405,000
	(Avoidable $405000)		(596400-405000)
	Purchase Price		$              2,406,900	$           (2,406,900)
			(21300*113)
	Total Annual Cost	$               2,619,900	$              2,598,300	$                                21,600
	The Offer Should be accepted because it shall result in incremental Net income of $21,600