Problem
Jobs, 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 20,200 Tri-Robos is as follows.
Cost
Direct materials ($48 per robot) $969,600
Direct labor ($42 per robot) 848,400
Variable overhead ($7 per robot) 141,400
Allocated fixed overhead ($30 per robot) 600,000
Total $2,559,400
Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $116 per unit or $2,343,200.
Following are independent assumptions.
Assume that $405,000 of the fixed overhead cost can be avoided.
Using incremental analysis, determine whether Jobs should accept this offer.
Assume that none of the fixed overhead can be avoided. However, if the robots are purchased from Tienh Inc., Jobs can use the released productive resources to generate additional income of $375,000.
Based on the above assumptions, indicate whether the offer should be accepted or rejected?