Exercise 206 Jobs Inc has recently started the manufacture o

Exercise 20-6 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. Direct materials ($48 per robot) Direct labor ($39 per robot) Variable overhead ($6 per robot) Allocated fixed overhead ($31 per robot) Cost 936,000 760,500 117,000 600,000 $2,413,500 Total obs is approached by Tienh Inc., which offers to make Tri-Robo for $113 per unit or $2,203,500 Following are independent assumptions 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).) Net Income Increase (Decrease) Make Buy Direct materials Direct labor Variable overhead Fixed overhead Purchase price Total annual cost

Solution

Make Buy Net Income Increase/(decrease) Direct materials $936,000 $0 $936,000 Direct labor 760500 0 $760,500 Variable overhead 117000 0 $117,000 Fixed overhead 600000 195000 $405,000 (600000-405000) Purchase price 0 2203500 ($2,203,500) Total cost $2,413,500 $2,398,500 $15,000 It is better to Buy as the annual cost is less than to make The offer should be accepted ans 2 Make Buy Net Income Increase/(decrease) Direct materials $936,000 $0 $936,000 Direct labor 760500 0 $760,500 Variable overhead 117000 0 $117,000 Fixed overhead 600000 600000 $0 Opportunity cost 375000 0 $375,000 Purchase price 0 2203500 ($2,203,500) Total cost $2,788,500 $2,803,500 ($15,000) The offer should be rejected as it is better to make than buy If any doubt please comment. If satisfied you can rate