SY Telc has recently started to manufacture RecRobo, a three-wheeled robot that can scan a home for fires and gas leaks and then transmit this information to a mobile phone. The cost structure to manufacture 20,100 RecRobos is as follows:

		Cost
Direct materials ($47 per robot)		$944,700
Direct labour ($27 per robot)		542,700
Variable overhead ($6 per robot)		120,600
Allocated fixed overhead ($24 per robot)		482,400
Total		$2,090,400

SY Telc is approached by Chen Inc., which offers to make RecRobo for $79 per unit or $1,587,900. Using incremental analysis, determine whether SY Telc should accept this offer under each of the following independent assumptions: (1) Assume that $301,500 of the fixed overhead cost is avoidable. (If an amount reduces the net income then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000).)

		Make		Buy		Net Income Increase (Decrease)
Direct materialsVariable overheadDirect labourFixed overheadPurchase priceTotal annual cost		$		$		$
Total annual costFixed overheadDirect labourDirect materialsPurchase priceVariable overhead
Purchase priceVariable overheadTotal annual costFixed overheadDirect labourDirect materials
Variable overheadPurchase priceDirect materialsTotal annual costFixed overheadDirect labour
Direct labourTotal annual costVariable overheadFixed overheadPurchase priceDirect materials
Total annual costDirect materialsPurchase priceFixed overheadVariable overheadDirect labour		$		$		$

Should the offer be accepted?

NoYes

(2) Assume that none of the fixed overhead is avoidable. However, if the robots are purchased from Chen Inc., SY Telc can use the released productive resources to generate additional income of $201,500. (If an amount reduces the net income then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000).)

		Make		Buy		Net Income Increase (Decrease)
Direct labourTotal annual costPurchase priceDirect materialsOpportunity costVariable overheadFixed overhead		$		$		$
Total annual costDirect materialsOpportunity costVariable overheadDirect labourPurchase priceFixed overhead
Fixed overheadPurchase priceDirect labourDirect materialsTotal annual costVariable overheadOpportunity cost
Total annual costOpportunity costVariable overheadPurchase priceDirect materialsDirect labourFixed overhead
Fixed overheadVariable overheadPurchase priceTotal annual costOpportunity costDirect materialsDirect labour
Fixed overheadDirect materialsTotal annual costPurchase priceDirect labourVariable overheadOpportunity cost
Total annual costOpportunity costDirect materialsFixed overheadVariable overheadPurchase priceDirect labour		$		$		$

Should the offer be accepted?

NoYes