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 20,300 Tri-Robos is as follows Cost Direct materials ($49 per robot) 5994,700 832.300 Direct labor $41 per robot) Variable overhead (55 per robot) Allocated fored overhead (530 per robot) 101.500 500.000 Total $2.528_500 Jobs is approached by Tinh Inc, which offers to make Tri-Robo for $114 per unit or $2,314.200 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.s. (45).) Net Income Increase (Decrease) Make Buy Direct materials 994700 Direct labor 832300 Variable Overhead 101500 Fixed overhead 600000 Purchase price Total annual 2528500 cost Using incremental analysis, determine whether Jobs should accept this offer. The offer

Answer 1

case 1: when $405,000 fixed overhead cost can be avoided

	make	buy	net income
direct material	994700	0	994700
direct labor	832300	0	832300
variable overhead	101500	0	101500
fixed overhead	600000	195000	405000
purchase price	0	2314200	(2314200)
total	2528500	2509200	19300

YES,jobs should accept the offer because it results in saving of $19300

CASE 2: when no fixed overhead can be avoided

	make	buy	net income
direct material	994700	0	994700
direct labour	832300	0	832300
variable overhead	101500	0	101500
fixed overhead	600000	600000	0
opportunity cost	375000	0	375000
purchase price	0	2314200	(2314200)
total cost	2903500	2914200	(10700)

NO, jobs shold not accept the offer because it results in loss of $10700