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 19,200 Tri-Robos is as follows. Cost Direct materials ($51 per robot) $979,200 Direct labor ($38 per robot) 729,600 Variable overhead ($7 per robot) 134,400 Allocated fixed overhead ($31 per robot) 595,200     Total $2,438,400 Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $116 per unit or $2,227,200. Following are independent assumptions.

(a1)

(a2) 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 direct materials in dollars $enter direct materials in dollars $enter direct materials in dollars Direct labor enter direct labor in dollars enter direct labor in dollars enter direct labor in dollars Variable overhead enter variable overhead in dollars enter variable overhead in dollars enter variable overhead in dollars Fixed overhead enter fixed overhead in dollars enter fixed overhead in dollars enter fixed overhead in dollars Opportunity cost enter the opportunity cost in dollars enter the opportunity cost in dollars enter the opportunity cost in dollars Purchase price enter the purchase price in dollars enter the purchase price in dollars enter the purchase price in dollars Totals $enter total amount in dollars $enter total amount in dollars $enter total amount in dollars Based on the above assumptions, indicate whether the offer should be accepted or rejected? The offer select an option should not be accepted should be accepted .

Answer 1

А - 1a2. Buy SO 3 Direct materials 4 Direct labor 5 Variable overhead 6 Fixed overhead 7 Opportunity cost 8 Purchase price 9 Total annual cost Make $979,200 $729,600 $134.400 $595,200 $375,000 Net Income Increase (Decrease) $979,200 $729,600 $134.400 SO $375,000 ($2,227,200 ($9,000 SO $595,200 SO SO $2,227,200 $2.822,400 $2.813.400 10 11 The offer should not be accepted as the net income would decrease by $9,000. Calculations are shown below: 4 А в с р 1 a2. Net Income Increase Make Buy (Decrease) 3 Direct materials 979200 =B3-C3 4 Direct labor 729600 =B4-C4 5 Variable overhead 134400 =B5-C5 6 Fixed overhead 595200 595200 =B6-C6 7 Opportunity cost 375000 =B7-C7 8 Purchase price 2227200 =B8-C8 9 Total annual cost =SUMB3-B8) =SUMC3:08) =B9-C9 10 11 The offer should not be accepted as the net income would decrease by $9,000.