Question
Bramble, 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
Bramble, 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 21,400 Tri-Robos is as follows.
Cost | |||
Direct materials ($52 per robot) | $1,112,800 | ||
Direct labor ($39 per robot) | 834,600 | ||
Variable overhead ($5 per robot) | 107,000 | ||
Allocated fixed overhead ($28 per robot) | 600,000 | ||
Total | $2,654,400 |
Bramble is approached by Tienh Inc., which offers to make Tri-Robo for $114 per unit or $2,439,600. Following are independent assumptions. 1- Prepare an incremental analysis. Assume that $405,000 of the fixed overhead cost can be avoided. Using incremental analysis, determine whether Bramble should accept this offer. Should this offer be accepted? 2- Prepare an incremental analysis. Assume that none of the fixed overhead can be avoided. However, if the robots are purchased from Tienh Inc., Bramble can use the released productive resources to generate additional income of $375,000. Based on the above assumptions, indicate whether the offer should be accepted or rejected?
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