Lily, 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 20,500 Tri-Robos is as follows. Cost Direct materials ($52 per robot) $1,066,000 Direct labor ($38 per robot) 779,000 Variable overhead ($7 per robot) 143,500 Allocated fixed overhead ($29 per robot) 594,500 Total $2,583,000 Lily is approached by Tienh Inc., which offers to make Tri-Robo for $116 per unit or $2,378,000. Following are independent assumptions. (a1) Assume that $405,000 of the fixed overhead cost can be avoided.

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