ent FULL SCREEN PRINTER VERSIONBACK NEXT Exercise 21-6 Jobs, Inc. has recently s

Question

ent FULL SCREEN PRINTER VERSIONBACK NEXT Exercise 21-6 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 19,200 Tri-Robos is as follows. Direct materials ($51 per robot) Direct labor ($38 per robot) Variable overhead ($7 per robot) Allocated fixed overhead ($31 per robot) Cost $979,200 729,600 134,400 600,000 $2,443,200 Total Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $116 per unit or $2,227,200 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. -15 or parentheses e.g. (15).) Net Income Increase (Decrease) Make Buy Direct materials Direct labor Variable ov ead

Explanation / Answer

Make or Buy decision analysis Make Buy Net Income Increase / (Decrease) Direct Materials $979,200 $0 $979,200 Direct Labour $729,600 $0 $729,600 Variable Overheads $134,400 $0 $134,400 Fixed Overhead $600,000 $195,000 $405,000 Purchase Price $0 $2,227,200 -$2,227,200 Total Annual Cost $2,443,200 $2,422,200 $21,000 The decision to buy Tri-robo for $116 per unit will increase the net income by $21000,hence Jobs should accept the offer.

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