Jobs, Inc. has recently started the manufacture of Tri-Robo, a three-wheeled rob

Question

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 20,200 Tri-Robos is as follows:
Cost Direct materials ($48 per robot) $969,600 Direct labor ($42 per robot) 848,400 Variable overhead ($7 per robot) 141,400 Allocated fixed overhead ($30 per robot) 600,000     Total $2,559,400
Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $116 per unit or $2,343,200.

Following are independent assumptions: 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 20,200 Tri-Robos is as follows:
Cost Direct materials ($48 per robot) $969,600 Direct labor ($42 per robot) 848,400 Variable overhead ($7 per robot) 141,400 Allocated fixed overhead ($30 per robot) 600,000     Total $2,559,400
Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $116 per unit or $2,343,200.

Following are independent assumptions: 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 20,200 Tri-Robos is as follows:
Cost Direct materials ($48 per robot) $969,600 Direct labor ($42 per robot) 848,400 Variable overhead ($7 per robot) 141,400 Allocated fixed overhead ($30 per robot) 600,000     Total $2,559,400
Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $116 per unit or $2,343,200.

Following are independent assumptions:

Explanation / Answer

The incremental analysis is prepared as below:

The offer should be accepted as it results in an increase in net income by $21,200.

Make (A) Buy (B) Increase/Decrease (A-B) Direct Materials 969,600 969,600 Direct Labor 848,400 848,400 Variable Overhead 141,400 141,400 Fixed Overhead 600,000 195,000 (600,000 - 405,000) 405,000 Purchase Price 2,343,200 -2,343,200 Total Annual Cost $2,559,400 $2,538,200 $21,200

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