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 mobile phone. The cost structure to manufacture 20,040 Tri-Robos is as follows.

Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $104 per unit or $2,084,160.

Using incremental analysis, determine whether Jobs should accept this offer under each of the following independent assumptions.

Assume that $260,520 of the fixed overhead cost can be reduced (avoided). (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Cost Direct materials ($45 per robot) $901,800 Direct labor ($42 per robot) 841,680 Variable overhead ($5 per robot) 100,200 Allocated fixed overhead ($21 per robot) 420,840     Total $2,264,520

Explanation / Answer

Assuming Fixed costs can be avoided

Assuming Fixed Cost cannot be avoided

From the above calculations, it seems that if the fixed costs can be avoided if buying option is usd, then buying is more feasible than making. Otherwise, making is more feasible.

Make Buy Net Income Inrease/Decrease Direct Material 901800 901800 Direct Labour 841680 841680 Variable Overheads 100200 100200 Fixed Overhead 420840 420840 Oppurtunity Cost Purchase Price 2084160 -2084160 2264520 2084160 180360

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