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)		600,000
Total		$2,623,500

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

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 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 option                                                                      should be acceptedshould not be accepted.

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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 option                                                                      should not be acceptedshould be accepted.

Answer 1

1
	Make	Buy	Net Income Increase (Decrease)
Direct materials	1086300	0	1086300
Direct labor	830700	0	830700
Variable overhead	106500	0	106500
Fixed overhead	600000	195000	405000
Purchase price	0	2406900	-2406900
Total annual cost	2623500	2601900	21600
The offer should be accepted
2
	Make	Buy	Net Income Increase (Decrease)
Direct materials	1086300	0	1086300
Direct labor	830700	0	830700
Variable overhead	106500	0	106500
Fixed overhead	600000	600000	0
Opportunity cost	375000	0	375000
Purchase price	0	2406900	-2406900
Total annual cost	2998500	3006900	-8400
The offer should not be accepted