Question

Exercise 12-6 (Part Level Submission) Ayayai, 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 19,000 Tri-Robos is as follows. Cost Direct materials ($48 per robot) Direct labor ($38 per robot) Variable overhead ($5 per robot) Allocated fixed overhead ($32 per robot) $912,000 722,000 95,000 600,000 $2,329,000 Total Ayayai is approached by Tienh Inc., which offers to make Tri-Robo for $111 per unit or $2,109,000. Following are independent assumptions. v (1)
Not sure why I am getting it wrong, I tried putting them as positive and it was still marked incorrect. Please explain.

Answer 1

Solution:

	Make	Buy	Net Income Increase (Decrease)
Direct Material	$9,12,000	$0	$9,12,000
Direct Labor	$7,22,000	$0	$7,22,000
Variable overhead	$95,000	$0	$95,000
Fixed Overhead	$6,00,000	$1,95,000	$4,05,000
Purchase Price	$0	$21,09,000	-$21,09,000
Total Annual Cost	$23,29,000	$23,04,000	$25,000

Note:

$405000 can be avoided from fixed overhead. Therefore, in case of buy, 600000 - 405000 = $195,000 will come for fixed overhead.