SY Telc 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 20,000 RecRobo’s is as follows. | Cost |
Direct materials ($40 per robot)| $ 800,000|
Direct labor ($30 per robot)| 600,000|
Variable overhead ($6 per robot)| 120,000|
Allocated fixed overhead ($25 per robot)| 500,000 |
Total| $2,020,000 |
SY Telc is approached by Chen Inc. which offers to make RecRobo for $90 per unit or $1,800,000. Instructions
* (a) Using incremental analysis, determine whether SY Telc should accept this offer under each of the following independent assumptions. * (1) Assume that $300,000 of the fixed overhead cost can be reduced (avoided). * (2) Assume that none of the fixed overhead can be reduced (avoided). However, if the robots are purchased from Chen Inc., SY Telc can use the released productive resources to generate additional income of $300,000. * (b) Describe the qualitative factors that might affect the decision to purchase the robots from an outside supplier.
Twyla Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing. | Current Machine | New Machine |
Original purchase cost| $15,000| $25,000|
Accumulated depreciation| $ 6,000| —|
Estimated annual operating costs| $24,000| $18,000|
Useful life| 5 years| 5 years|
If sold now, the current machine would have a salvage value of $5,000. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to...