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 19,900 RecRobos is as follows:

		Cost
Direct materials ($ 40 per robot)		$ 796,000
Direct labour ($ 35 per robot)		696,500
Variable overhead ($ 7 per robot)		139,300
Allocated fixed overhead ($ 22 per robot)		437,800
Total		$ 2,069,600

SY Telc is approached by Chen Inc., which offers to make RecRobo for $ 78 per unit or $ 1,552,200. Using incremental analysis, determine whether SY Telc should accept this offer under each of the following independent assumptions: (1) Assume that $ 238,800 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 materialsFixed overheadDirect labourTotal annual costPurchase priceVariable overhead		$		$		$
Direct materialsPurchase priceVariable overheadTotal annual costFixed overheadDirect labour
Direct materialsTotal annual costPurchase priceFixed overheadVariable overheadDirect labour
Total annual costDirect materialsVariable overheadPurchase priceFixed overheadDirect labour
Fixed overheadPurchase priceDirect materialsVariable overheadTotal annual costDirect labour
Total annual costVariable overheadDirect labourFixed overheadDirect materialsPurchase price		$		$		$

Should the offer be accepted?

YesNo

(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 $ 138,800. (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)
Total annual costPurchase priceFixed overheadVariable overheadDirect labourDirect materialsOpportunity cost		$		$		$
Direct materialsTotal annual costVariable overheadPurchase priceOpportunity costDirect labourFixed overhead
Total annual costDirect materialsFixed overheadPurchase priceOpportunity costVariable overheadDirect labour
Purchase priceFixed overheadDirect materialsDirect labourOpportunity costTotal annual costVariable overhead
Variable overheadDirect materialsPurchase priceOpportunity costTotal annual costDirect labourFixed overhead
Direct materialsTotal annual costDirect labourOpportunity costPurchase priceFixed overheadVariable overhead
Direct labourOpportunity costFixed overheadTotal annual costDirect materialsPurchase priceVariable overhead		$		$		$

Should the offer be accepted?

No/Yes