Exercise 12-6 (Part Level Submission)

Indigo, 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 21,000 Tri-Robos is as follows.

		Cost
Direct materials ($49 per robot)		$1,029,000
Direct labor ($41 per robot)		861,000
Variable overhead ($5 per robot)		105,000
Allocated fixed overhead ($29 per robot)		600,000
Total		$2,595,000

Indigo is approached by Tienh Inc., which offers to make Tri-Robo for $113 per unit or $2,373,000. Following are independent assumptions.

(a1) Prepare an incremental analysis. Assume that $405,000 of the fixed overhead cost can be avoided.