Exercise 20-6 (Part Level Submission)

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 19,800 Tri-Robos is as follows.

Cost Direct materials ($51 per robot) $1,009,800 Direct labor ($40 per robot) 792,000 Variable overhead ($6 per robot) 118,800 Allocated fixed overhead ($30 per robot) 600,000 Total $2,520,600

Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $116 per unit or $2,296,800. Following are independent assumptions.

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(a1)

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).)

Make Buy Net Income Increase (Decrease) Direct materials $ $ $ Direct labor Variable overhead Fixed overhead Purchase price Total annual cost $ $ $

Using incremental analysis, determine whether Jobs should accept this offer.

The offer should not be accepted should be accepted .