Exercise 7-6 Jobs, Inc. has recently started the manufacture of Tri-Robo, a thre

Question

Exercise 7-6 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 19,400 Tri-Robos is as follows: Direct materials ($49 per robot) Direct labor ($37 per robot) Variable overhead ($6 per robot) Allocated fixed overhead ($31 per robot) Cost $950,600 717,800 116,400 600,000 $2,384,800 Total Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $112 per unit or $2,172,800 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. -45 or parentheses e.g. (45).) Net Income Increase (Decrease) Make Buy Direct materials Direct labor Variable overhead Fixed overhead

Explanation / Answer

Net income 1) Increase Make Buy (decrease) Direct materials 950,600             950,600 Direct labor 717,800             717,800 Variable overhead 116,400             116,400 Fixed overhead 600,000 195,000             405,000 purchase price 2,172,800        (2,172,800) total annual cost           2,384,800 2367800               17,000 the offer should be Accepted Net income Increase Make Buy (decrease) Direct materials 950,600             950,600 Direct labor 717,800             717,800 Variable overhead 116,400             116,400 Fixed overhead 600,000 600,000                        -   popportunity cost 375,000 0             375,000 purchase price 2,172,800        (2,172,800) total annual cost           2,759,800 2772800              (13,000) the offer should be not be Accepted

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