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 19,300 Tri-Robos is as follows.

		Cost
Direct materials ($51 per robot)		$984,300
Direct labor ($38 per robot)		733,400
Variable overhead ($6 per robot)		115,800
Allocated fixed overhead ($31 per robot)		598,300
Total		$2,431,800

Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $115 per unit or $2,219,500.

Following are independent assumptions.

(a1)

Correct answer iconYour answer is correct.

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.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
Purchase price		enter the purchase price in dollars		enter the purchase price in dollars		enter the purchase price in dollars
Total annual cost		$enter total annual cost in dollars		$enter total annual cost in dollars		$enter total annual cost in dollars

Using incremental analysis, determine whether Jobs should accept this offer.

The offer select an optionshould not be acceptedshould be accepted should be acceptedshould not be accepted.

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Attempts: 2 of 3 used

(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 optionshould be acceptedshould not be accepted should not be accepted should be accepted .

Answer 1

Jobs Inc.( 19300 Tri robos )
	Make	Buy	Differential
DM	984300		984300
DL	733400		733400
Var. FOH	115800		115800
FOH	598300	193300	405000	( 598300 - 405000 = 193300 )
Purchase Price		2219500	-2219500
Total Relevant cost	2431800	2412800	-19000
Jobs Inc. should buy the component.
The offer should be accepted.
Jobs Inc.( 19300 Tri robos )
	Make	Buy	Differential
DM	984300		984300
DL	733400		733400
Var. FOH	115800		115800
FOH	598300	598300	0
Opportunity cost	375000
Purchase Price		2219500	-2219500
Total Relevant cost	2806800	2817800	11000
The offer should not be accepted.