Oriole, 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 20,500 Tri-Robos is as follows.
Cost
Direct materials ($52 per robot)
$1,066,000
Direct labor ($38 per robot)
779,000
Variable overhead ($7 per robot)
143,500
Allocated fixed overhead ($29 per robot)
594,500
Total
$2,583,000
Oriole is approached by Tienh Inc., which offers to make Tri-Robo for $116 per unit or $2,378,000.
Following are independent assumptions.
(a1)
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).)
Direct materials
Direct labor
Variable overhead
Fixed overhead
Make
Buy
$
$
$
Purchase price
Total annual cost
$
$
Net Income
Increase
(Decrease)