Exercise 76 Jobs Inc has recently started the manufacture of

Exercise 7-6 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 19,800 Tri-Robos is as follows: Direct materials ($51 per robot) Direct labor ($40 per robot) Variable overhead ($6 per robot) Allocated fixed overhead ($30 per robot) Cost $1,009,800 792,000 118,800 600,000 $2,520,600 Total Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $116 per unit or $2,296,800 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 $ Using incremental analysis, determine whether Jobs should accept this offer The offer

Solution

Req Make Buy Net income Direct material 1009800 1009800 Direct labour 792000 792000 variable OH 118800 118800 Fixed OH 600000 195000 405000 Purchase price 0 2296800.00 -2296800 Total annual cost 2520600 2491800.00 28800 hence, The Offer Must be accepted Req Make Buy Net income Direct material 1009800 1009800 Direct labour 792000 792000 variable OH 118800 118800 Fixed OH 600000 600000 0 Opportunity cost 375000 0 375000 Purchase price 0 2296800.00 -2296800 Total annual cost 2520600 2491800.00 -1200 Hence, The offer must be rejected