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 20,400 Tri-Robos is as follows.

		Cost
Direct materials ($51 per robot)		$1,040,400
Direct labor ($39 per robot)		795,600
Variable overhead ($7 per robot)		142,800
Allocated fixed overhead ($29 per robot)		591,600
Total		$2,570,400

Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $116 per unit or $2,366,400.

Following are independent assumptions.

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		$		$		$
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?

Answer 1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.