Question
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
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 20,000 RecRobos is as follows:
Cost | |||
Direct materials ($37 per robot) | $740,000 | ||
Direct labour ($29 per robot) | 580,000 | ||
Variable overhead ($4 per robot) | 80,000 | ||
Allocated fixed overhead ($23 per robot) | 460,000 | ||
Total | $1,860,000 |
SY Telc is approached by Chen Inc., which offers to make RecRobo for $70 per unit or $1,400,000. Using incremental analysis, determine whether SY Telc should accept this offer under each of the following independent assumptions: (1) Assume that $300,000 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) | |||||
Fixed overheadDirect materialsDirect labourTotal annual costVariable overheadPurchase price | $ | $ | $ | ||||
Fixed overheadDirect labourTotal annual costVariable overheadDirect materialsPurchase price | |||||||
Fixed overheadDirect materialsTotal annual costDirect labourPurchase priceVariable overhead | |||||||
Fixed overheadPurchase priceDirect materialsDirect labourTotal annual costVariable overhead | |||||||
Variable overheadFixed overheadPurchase priceDirect labourTotal annual costDirect materials | |||||||
Direct materialsPurchase priceDirect labourFixed overheadTotal annual costVariable overhead | $ | $ | $ |
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 $200,000. (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) | |||||
Purchase priceVariable overheadDirect materialsTotal annual costOpportunity costFixed overheadDirect labour | $ | $ | $ | ||||
Total annual costPurchase priceDirect materialsDirect labourOpportunity costVariable overheadFixed overhead | |||||||
Direct materialsPurchase priceTotal annual costOpportunity costFixed overheadVariable overheadDirect labour | |||||||
Purchase priceVariable overheadOpportunity costDirect materialsFixed overheadTotal annual costDirect labour | |||||||
Direct labourFixed overheadOpportunity costVariable overheadTotal annual costPurchase priceDirect materials | |||||||
Opportunity costDirect materialsFixed overheadPurchase priceDirect labourTotal annual costVariable overhead | |||||||
Opportunity costFixed overheadDirect materialsVariable overheadPurchase priceDirect labourTotal annual cost | $ | $ | $ |
Should the offer be accepted?
YesNo |
3. Pro Sports Inc. manufactures basketballs for professional basketball associations. For the first six months of 2020, the company reported the following operating results while operating at 90% of plant capacity:
Amount | Per Unit | |||
Sales | $5,416,200 | $51.00 | ||
Cost of goods sold | 3,610,800 | 34.00 | ||
Selling and administrative expenses | 435,420 | 4.10 | ||
Net income | $1,369,980 | $12.90 |
Fixed costs for the period were cost of goods sold of $1,062,000, and selling and administrative expenses of $191,160. In July, normally a slack manufacturing month, Pro Sports receives a special order for 10,620 basketballs at $30 each from the Italian Basketball Association. Accepting the order would increase variable selling and administrative expenses by $0.75 per unit because of shipping costs, but it would not increase fixed costs and expenses.
Prepare an incremental analysis for the special order. (Round per unit calculations to 2 decimal places, e.g. 15.25 and final answers to 0 decimal places, e.g. 125.)
Incremental revenue | $ | |||
Incremental cost: | ||||
Variable COGS | $ | |||
Variable S & A | ||||
Additional S & A | ||||
Incremental income | $ |
Should Pro Sports Inc. accept the special order?
Pro Sports Inc. should rejectaccept the special order. |
What is the minimum selling price on the special order to produce net income of $4.00 per ball? (Round answer to the 2 decimal places, e.g. 15.25.)
Minimum selling price | $ |
3.
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