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 mobile phone. The cost structure to manufacture 20,000 Tri-Robos is as follows.
|
|
Cost |
|
| Direct materials ($42 per robot) |
|
$840,000 |
|
| Direct labor ($41 per robot) |
|
820,000 |
|
| Variable overhead ($8 per robot) |
|
160,000 |
|
| Allocated fixed overhead ($25 per robot) |
|
500,000 |
|
| Total |
|
$2,320,000 |
Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $106 per unit or $2,120,000.
Assume that $320,000 of the fixed overhead cost can be reduced (avoided). Prepare incremental analysis.(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 |
|
$ |
|
$ |
|
$ |
|
| Direct labor |
|
|
|
|
|
|
|
| Variable overhead |
|
|
|
|
|
|
|
| Fixed overhead |
|
|
|
|
|
|
|
| Purchase price |
|
|
|
|
|
|
|
| Total annual cost |
|
$ |
|
$ |
|
$ |
Determine whether Jobs should accept this offer.