Question

Question 3 Blue, 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 19,100 Tri-Robos is as follows. Cost Direct materials ($51 per robot) Direct labor ($41 per robot) Variable overhead ($5 per robot) Allocated fixed overhead ($31 per robot) $974,100 783,100 95,500 600,000 $2,452,700 Total Blue is approached by Tienh Inc., which offers to make Tri-Robo for $117 per unit or $2,234,700 Following are independent assumptions. A1 A2

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Answer 1

	Make	Buy	Increamental
Direct Material	974,100		974,100
Direct Labor	783,100		783,100
Variable overhead	95,500		95,500
Avoidable fixed overhead	405,000		405,000
Purchase cost		2,234,700	(2,234,700)
Net saving in buying from outside			23,000
Since there is saving if we purchase from outside so offer should be accepted
	Make	Buy	Increamental
Direct Material	974,100		974,100
Direct Labor	783,100		783,100
Variable overhead	95,500		95,500
Avoidable fixed overhead	-		-
Contribution lost		(375,000)	375,000
Purchase cost		2,234,700	(2,234,700)
Net saving in buying from outside			(7,000)
Since there is loss if we purhase from outside hence it is advisible to make inhouse