Selleck has recently started the manufacture of 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 19,980 RecRobo's is as follows.
Cost: Direct materials ($37 per robot) $739,260, Direct labor ($31 per robot)$619,380, Variable overhead ($5 per robot) $99,900, Allocated fixed overhead ($24 per robot) $479,520, Total $1,938,060
. Selleck is approached by Padong Inc. which offers to make RecRobo for $86 per unit or $1,718,280.
Using incremental analysis, determine whether Selleck should accept this offer under each of the following independent assumptions. (If answer is zero, please enter 0. Do not leave any fields blank. If amount decreases the income, use either a negative sign preceding the number eg -45 or parentheses eg (45).)
(1) Assume that $299,700 of the fixed overhead cost can be reduced (avoided). Should the offer be accepted?
. Assume that none of the fixed overhead can be reduced (avoided). However, if the robots are purchased from Padong Inc., Selleck can use the released productive resources to generate additional income of $299,700. Should the offer be accepted?