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)
Purchase priceDirect labourVariable overheadTotal annual costDirect materialsFixed overhead		$		$		$
Direct materialsFixed overheadPurchase priceTotal annual costDirect labourVariable overhead
Variable overheadDirect labourTotal annual costPurchase priceFixed overheadDirect materials
Variable overheadDirect labourDirect materialsTotal annual costPurchase priceFixed overhead
Fixed overheadPurchase priceDirect materialsTotal annual costDirect labourVariable overhead
Direct labourTotal annual costPurchase priceVariable overheadDirect materialsFixed overhead		$		$		$

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)
Fixed overheadTotal annual costVariable overheadDirect labourPurchase priceOpportunity costDirect materials		$		$		$
Variable overheadFixed overheadPurchase priceOpportunity costDirect labourTotal annual costDirect materials
Fixed overheadDirect labourTotal annual costVariable overheadPurchase priceDirect materialsOpportunity cost
Direct labourPurchase priceVariable overheadTotal annual costOpportunity costFixed overheadDirect materials
Direct materialsPurchase priceDirect labourFixed overheadOpportunity costTotal annual costVariable overhead
Total annual costPurchase priceFixed overheadVariable overheadDirect labourOpportunity costDirect materials
Direct labourFixed overheadVariable overheadOpportunity costTotal annual costDirect materialsPurchase price		$		$		$

Should the offer be accepted?

NoYes