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 19,500 Tri-Robos is as follows.

		Cost
Direct materials ($ 48 per robot)		$ 936,000
Direct labor ($ 39 per robot)		760,500
Variable overhead ($ 6 per robot)		117,000
Allocated fixed overhead ($ 31 per robot)		600,000
Total		$ 2,413,500

Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $ 113 per unit or $2,203,500.

Following are independent assumptions.

Partially correct answer iconYour answer is partially correct.

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 a dollar amount		$ enter a dollar amount		$ enter a dollar amount
Direct labor		enter a dollar amount		enter a dollar amount		enter a dollar amount
Variable overhead		enter a dollar amount		enter a dollar amount		enter a dollar amount
Fixed overhead		enter a dollar amount		enter a dollar amount		enter a dollar amount
Purchase price		enter a dollar amount		enter a dollar amount		enter a dollar amount
Total annual cost		$ enter a total amount for this column		$ enter a total amount for this column		$ enter a total amount for this column

Using incremental analysis, determine whether Jobs should accept this offer.

The offer select an optionselect an option  should not be acceptedshould be accepted.

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Partially correct answer iconYour answer is partially correct.

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 a dollar amount		$ enter a dollar amount		$ enter a dollar amount
Direct labor		enter a dollar amount		enter a dollar amount		enter a dollar amount
Variable overhead		enter a dollar amount		enter a dollar amount		enter a dollar amount
Fixed overhead		enter a dollar amount		enter a dollar amount		enter a dollar amount
Opportunity cost		enter a dollar amount		enter a dollar amount		enter a dollar amount
Purchase price		enter a dollar amount		enter a dollar amount		enter a dollar amount
Totals		$ enter a total amount for this column		$ enter a total amount for this column		$ enter a total amount for this column

Based on the above assumptions, indicate whether the offer should be accepted or rejected?

The offer select an optionselect an option  should not be accepted should be accepted .

Answer 1

Solution 1:

Jobs Inc. Differential Analysis - Making Robo (alt 1) or Buying Robo(Alt2)
Particulars	Make (Alt 1)	Buy (Alt 2)	Financial advantage (Disadvantage) of buying (Alternative 2)
Costs:
Direct material	$936,000.00	$0.00	$936,000.00
Direct Labor	$760,500.00	$0.00	$760,500.00
Variable overhead	$117,000.00	$0.00	$117,000.00
Fixed overhead	$405,000.00	$0.00	$405,000.00
Opportunity cost	$0.00	$0.00	$0.00
Purchase price	$0.00	$2,203,500.00	-$2,203,500.00
Total cost	$2,218,500.00	$2,203,500.00	$15,000.00

As there is net financial advantage of $15,000, therefore job should accept outside supplier offer.

Solution 2:

Jobs Inc. Differential Analysis - Making Robo (alt 1) or Buying Robo(Alt2)
Particulars	Make (Alt 1)	Buy (Alt 2)	Financial advantage (Disadvantage) of buying (Alternative 2)
Costs:
Direct material	$936,000.00	$0.00	$936,000.00
Direct Labor	$760,500.00	$0.00	$760,500.00
Variable overhead	$117,000.00	$0.00	$117,000.00
Fixed overhead	$0.00	$0.00	$0.00
Opportunity cost	$375,000.00	$0.00	$375,000.00
Purchase price	$0.00	$2,203,500.00	-$2,203,500.00
Total cost	$2,188,500.00	$2,203,500.00	-$15,000.00

As there is net financial disadvantage of $15,000, therefore job should not accept outside supplier offer.