Jobs Inc. has recently started the manufacturer 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 21, 300 Tri-Robos is as follows. Cost
Direct materials $1,086,300
Direct labor ($39 per robot) 830,700
Variable overhead ($5 per robot) 106,500
Allocated fixed overhead ($28 per robot) 600,000
Total $2,623,500
Jobs is approached by Tiench Inc, which offers to make Tri-Robo for $113 per unit of $2,406,900.
Following are independent.
Assume that $405,000 of the fixed overhead cost can be avoided. Enter negative amount.
Make Buy Net Income Increase (Decrease)
Direct materials $ $ $
Direct labor
Variable overhead
Fixed overhead
Purchased price
Totals $ $ $
Using incremental analysis, determine whether Jobs should accept this offer.
The offer
Assume that none of the fixed can be avoided. However, if the robots are purchased from Tienh Inc, Jobs can use the released productive resources to generate additional income f $375,000 Enter negative amount.
Make Buy Net Income Increase (Decrease)
Direct materials $ $ $
Direct labor
Variable overhead
Fixed overhead
Opportunity cost
Purchased price
Totals $ $ $
Based on the above assumptions, indicate whether the offer should be accepted or rejected?
The offer

Jobs Inc.

1. The offer should not be accepted.

2. The offer should be accepted.

Explanation:

a) Data and Calculations:

Units of Tri-Robos to be manufactured = 21,300

Costs of manufacturing:

Direct materials                                        $1,086,300

Direct labor ($39 per robot)                         830,700

Variable overhead ($5 per robot)                106,500

Allocated fixed overhead ($28 per robot) 600,000

Total                                                        $2,623,500

Unit cost = $123.17 ($2,623,500/21,300)

Price from Tiench Inc per unit = $113

Total offer price = $2,406,900 ($113 * 21,300)

                               Make           Buy     Net Income Increase (Decrease)

Direct materials    $1,086,300    $ $

Direct labor                830,700

Variable overhead     106,500

Fixed overhead          195,000

Purchased price                          2,406,900

Totals                    $2,218,500  $2,406,900 $188,400 Decrease

                                                                      Make           Buy    

Direct materials                                        $1,086,300

Direct labor ($39 per robot)                         830,700

Variable overhead ($5 per robot)                106,500

Allocated fixed overhead ($28 per robot) 600,000

Total                                                        $2,623,500 $2,406,900

Opportunity cost                                          375,000

Total                                                        $2,998,500 $2,406,900 $591,600

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