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Wildhorse, Inc. has recently started the manufacture of Tri-Robo, a three-wheeled robot that can scan a home for fires and gas leaks and then transmit
Wildhorse, Inc. has recently started the manufacture of Tri-Robo, a three-wheeled robot that can scan a home for fires and gas leaks and then transmit this information to a smartphone. The cost structure to manufacture 21,100 Tri-Robos is as follows.
Cost | |||
Direct materials ($49 per robot) | $1,033,900 | ||
Direct labor ($40 per robot) | 844,000 | ||
Variable overhead ($7 per robot) | 147,700 | ||
Allocated fixed overhead ($28 per robot) | 590,800 | ||
Total | $2,616,400 |
Wildhorse is approached by Tienh Inc., which offers to make Tri-Robo for $114 per unit or $2,405,400. Following are independent assumptions.
Assume that $405,000 of the fixed overhead cost can be avoided. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Net Income Increase (Decrease) Make Buy Direct materials Direct labor Variable overhead Fixed overhead Purchase price Total annual cost $ Using incremental analysis, determine whether Wildhorse should accept this offer. The offe should not be accepted should be accepted Assume that none of the fixed overhead can be avoided. However, if the robots are purchased from Tienh Inc., Wildhorse can use the released productive resources to generate additional income of $375,000. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Net Income Increase (Decrease) Make Buy Direct materials $ Direct labor Variable overhead Fixed overhead Opportunity cost Purchase price Totals Based on the above assumptions, indicate whether the offer should be accepted or rejected? The offerStep by Step Solution
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