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 Use incremental analysis for make-or-buy decisiorn. (LO 4), E E20-6 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 Tri-Robos is as follows Cost Direct materials ($50 per robot) Direct labor ($40 per robot) Variable overhead ($6 per robot) Allocated fixed overhead ($30 per robot) $1,000,000 800,000 120,000 600,000 $2,520,000 Total Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $115 per unit or $2,300,000 Instructions (a) Using incremental analysis, determine whether Jobs should accept this offer under each of the tollowing independent assumptions (1) Assume that $405,000 of the fixed overhead cost can be reduced (avoided) (2) Assume that none of the fixed overhead can be reduced (avoided). However, if the robots are purchased from Tienh Inc., Jobs can use the released productive resources to generate additional income of $405,000 Exercises (b) Describe the qualitative factors that might affect the decision to purchase the robots from an outside supplie.

Explanation / Answer

a) 1)Assume that $ 405000 of the fixed overhead cost can be reduced(avoided) $ Total cost including allocated fixed overhead     2,520,000.00 Less:fixed overhead that can be reduced -      405,000.00 total cost if manufactured     2,115,000.00 Total cost if purchased     2,300,000.00 From the above it is clear that it is better to manufacture rather than buy Tri-robo because incremental cost if purchased is 2300000-2115000=185000 $ 185000 can be saved if manufactured Tri-robo 2) Total cost including allocated fixed overhead     2,520,000.00 Total cost if purchased     2,300,000.00 Less:additional income that can be earned if purchased -      405,000.00 Net Cost if purchased     1,895,000.00 in this case purchase cost is less than manufacturing cost so it is requesred to buy b) qualitative factors purchase price of the product use of resources to earn additional revenue quality of the product

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