Rowurbot develops collaborative robots (cobots) in Abbotsford, BC. Cobots are designed to work with humans and are high in demand for industrial manufacturing applications. The base, arms, column, and supports are first fabricated and then they undergo precision welding. Production capacity is determined by the availability of automated welding machine hours. A maximum of 2,000 welding hours are available annually on the machine.

Rowurbot currently manufactures one design of cobot, called Bits. Each Bits require 0.8 hours of welding time. Current annual production is limited to 2,500 Bits. However, management believes that there is a demand for at least 3,200 Bits per year in western Canada and US if the company were to have sufficient welding machine capacity.

The following information is related to the manufacturing of each Bits

Selling Price		$ 150,000
Cost per Bits
Direct materials	65,000
Direct Labour ($36 per hour)	3,240
Manufacturing overhead	13,760
Selling and administrative expenses	15,000	97,000
		53,000

The company can purchase a new machine, however due to limited space to operate two welding machines, the entire production would need to move to new premises. The total one time cost of the move will be close to $2M and the change in manufacturing process, new equipment and plant will cost another $8M. Due to the financial and political situation this expansion can only be implemented after five years. Owing to the high costs, management wonders if acquisition of a second welding machine should even be considered in the near future.

Meanwhile, management is considering the option of buying additional Bits from an outside supplier. Weld King Inc, is willing to custom manufacture for Rowurbot. Weld King would be able to supply 2,000 Bits per year at a price of $130,000 each. Rowurbot can sell the Bits it purchases from Weld King at the normal selling price and pay the standard sales commission on each unit sold.

Should Rowurbot have additional welding machine hours available it can manufacture a smaller design of cobot, called Pcs. Pcs requires only 0.25hrs of welding machine time. Pcs can be sold for $60,000 each and the company can sell up to 3,500 Pcs per year.

The following information is related to the manufacturing of each Pcs.

Selling Price		$ 60,000
Cost per Bits
Direct materials	22,000
Direct Labour ($36 per hour)	4,590
Manufacturing overhead	19,500
Selling and administrative expenses	5,800	51,890
		8,110

Assume the following:

All Direct Labour is paid for a 40-hour workweek. The company does not lay-off employees during certain slow periods because such skilled labour is usually hard to replace and train.

Manufacturing overhead: Variable manufacturing overhead is $1,100 per Bits and $500 per Pcs, the remaining balances for both products are fixed manufacturing overhead - allocated based on direct labour cost.

Selling and Administration expenses: Variable Selling & Administration consists entirely of sales commission on sales to outside customers, $3,000 per Bits and $1,200 per Pcs. The remaining balance for each product is fixed Selling and Administration expenses - allocated based on selling price.

Programming task at client sites in western Canada

Once a sale of Bits occur, Rowurbot contracts the programming of computers that control the robot to Techie-Joe Inc. Techie-Joe charges Rowurbot for direct cost of its technicians as well as an arbitrary administrative fee that varies depending on the client. The customers reimburse Rowurbot for any payment it makes to Techie-Joe Inc. Techie-Joe is currently short of staff and has been responsible for delays that have left some clients frustrated. Management is now debating whether to renew Techie-Joes contract for year 2023 or instead have Rowurbot hire technicians on salary or contract per-diem to provide the programming services.

Below is some information on the programming services:

In the last 12 months, Techie-Joe has charged $3M for tech support it provided for 2,500 Bits. The $3M amount was omitted from the Bits financial data above because the entire cost is reimbursed from client with no mark-up.

Management determined that this specific programming task is standard. Each unit needs seven (7) hours of programming tech support (includes travel time).

Each full-time employee works about 1,900 hours a year. HR believes the salary including fringe benefit would be on average $100,000 for each employee.

Alternatively, Rowurbot can contract out this job as needed to per-diem contractors that charge $150 per hour.

Currently HR handles all work schedules relating to Techie-Joe contracts. HR believes there will be no additional administrative or supervision costs if company hires salaried employees or per-diem contractors.

Your team is hired by Rowurbot management to offer a report on the following questions raised in a recent meeting:

Q1 to Q3, please ignore Techie-Joe and programming costs in your analysis

Considering the lower margin of Pcs at $8,110, should management even consider producing Pcs?

Is Direct Labour in this situation a variable cost or fixed cost?

Determine the number of Bits Rowurbot should purchase from Weld King and number of Bits and/or Pcs it should manufacture to maximize contribution margin and net operating income.

Programming task:

Assume part-time employment in this field and combination of per-diem and full-time is not feasible. Should Rowurbot continue using Techie-Joe services or consider hiring full-time employees or per-diem contractors as of January 2023?

Discuss the immediate impact on Jan 2023 as well as the impact on your recommendation in #3 above were implemented.