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 19,500 Tri-Robos is as follows.
Cost
Direct materials ($48 per robot)$936,000
Direct labor ($39 per robot)760,500
Variable overhead ($6 per robot)117,000
Allocated fixed overhead ($31 per robot)604,500
Total$2,418,000
Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $113 per unit or $2,203,500. Following are independent assumptions.
(a1)
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).)
MakeBuyNet Income Increase (Decrease)
Direct materials$$$
Direct labor
Variable overhead
Fixed overhead
Purchase price
Total annual cost$$$
Using incremental analysis, determine whether Jobs should accept this offer. The offer
should not be acceptedshould be accepted
.
Answer & Explanation
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