Question 1 - Selleck has recently started the manufacture of RecRobo, a three-wheeled robot that can scan a home for fires and gas leaks and then transmit this information to a mobile phone. The cost structure to manufacture 20,100 RecRobo's is as follows.
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Cost
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Direct materials ($43 per robot)
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$864,300
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Direct labor ($29 per robot)
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582,900
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Variable overhead ($7 per robot)
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140,700
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Allocated fixed overhead ($23 per robot)
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462,300
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Total
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$2,050,200
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Selleck is approached by Padong Inc. which offers to make RecRobo for $90 per unit or $1,809,000.
Using incremental analysis, determine whether Selleck should accept this offer under each of the following independent assumptions.
(1) Assume that $261,300 of the fixed overhead cost can be reduced (avoided).
(2) Assume that none of the fixed overhead can be reduced (avoided). However, if the robots are purchased from Padong Inc., Selleck can use the released productive resources to generate additional income of $261,300.
Question 2 - Selleck has recently started the manufacture of RecRobo, a three-wheeled robot that can scan a home for fires and gas leaks and then transmit this information to a mobile phone. The cost structure to manufacture 20,000 RecRobo's is as follows.
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Cost
|
|
Direct materials ($40 per robot)
|
$800,000
|
|
Direct labor ($30 per robot)
|
600,000
|
|
Variable overhead ($6 per robot)
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120,000
|
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Allocated fixed overhead ($25 per robot)
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500,000
|
|
Total
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$2,020,000
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Selleck is approached by Padong Inc. which offers to make RecRobo for $90 per unit or $1,800,000.
Describe the qualitative factors that might affect the decision to purchase the robots from an outside supplier.