Question

Question 3 Riverbed, 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 20,300 Tri-Robos is as follows. Cost Direct materials ($49 per robot) $994,700 Direct labor ($41 per robot) 832,300 Variable overhead ($5 per robot) 101,500 Allocated fixed overhead ($30 per robot) 600,000 Total $2,528,500 Riverbed is approached by Tienh Inc., which offers to make Tri-Robo for $114 per unit or $2,314,200. Following are independent assumptions. Prepare an incremental analysis. Assume that $405,000 of the fixed overhead cost can be avoided. (If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Make Buy Net Income Increase (Decrease) Direct materials $ $ $ Direct labor Variable overhead Fixed overhead Purchase price Total annual cost $ $ $ Using incremental analysis, determine whether Riverbed should accept this offer. The offer . Prepare an incremental analysis. Assume that none of the fixed overhead can be avoided. However, if the robots are purchased from Tienh Inc., Riverbed can use the released productive resources to generate additional income of $375,000. (If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Make Buy Net Income Increase (Decrease) Direct materials $ $ $ Direct labor Variable overhead Fixed overhead Opportunity cost Purchase price Totals $ $ $ Based on the above assumptions, indicate whether the offer should be accepted or rejected? The offer .

Answer 1

1) Calculate Following :

	Make	Buy	Net income increase (Decrease)
Direct material	994700		994700
direct labour	832300		832300
Variable overhead	101500		101500
Fixed overhead (avoidable)	405000		405000
Purchase cost		2314200	-2314200
Total relevant cost	23333500	2314200	19300

The offer should be accepted

2) Calculate Following :

	Make	Buy	Net income increase (Decrease)
Direct material	994700		994700
direct labour	832300		832300
Variable overhead	101500		101500
Fixed overhead (avoidable)	600000	600000	0
Opportunity Cost	375000		375000
Purchase cost		2314200	-2314200
Total relevant cost	2903500	2914200	-10700

The offer should not be accepted