SY Telc has recently started the manufacture of RecRobo, a three-wheeled robot t

Question

SY Telc has recently started the manufacture of RecRobo, 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 RecRobo's is as follows. SY Tele is approached by Chen Inc. which offers to make RecRobofor $90 per unit or $1, 800,000. Using incremental analysis, determine whether SY Tele should accept this offer under each of the following independent assumptions. Assume that $300,000 of the fixed overhead cost can be reduced (avoided). Assume that none of the fixed overhead can be reduced (avoided). However, if the robots arc purchased from Chen Inc., SY Tele can use the released productive resources to generate additional income of $300.000. Describe the qualitative factors that might affect the decision to purchase the robots from an outside supplier. Use incremental analysis for further processing of materials decision.

Explanation / Answer

Total cost = 2020000 case a reduced fixed overhead = 300000 overhead still in charge = 200000 total cost if we SY telc accept offer = 1800000+200000 = 2000000 which is 20000 less than if they manufactured it. so buying is better case b Cost if we SY telc accept offer = 1800000+500000 = 2300000 additional income if we SY telc accept offer = 300000 net cost = 20000000 which is 200000 less than if they manufactured it. so buying is better Qualitative factor may be change of price or costs

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