Chapter 9 - Carlyle Brown Chapter 9 SY Telc has recently...

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Carlyle Brown Chapter 9 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 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. .
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Direct Material $800,000.00 Direct Labor $600,000.00 Variable Overhead $120,000.00 Allocated Fixed Overhead $500,000.00 $2,020,000.00 1. Answer Details According to the give information, Direct Material $800,000.00 Direct Labor $600,000.00 Variable Overhead $120,000.00 Allocated Fixed Overhead $500,000.00 $2,020,000. 00 Allocated Fixed Overhead $2,020,000. 00 divided by Units $20,000.00 Cost per Unit $101.00 Case-1: If the Fixed overhead is reduced or avoided by $300,000 then the total cost per unit is calculated as Allocated Fixed Overhead $2,020,000. 00 divided by Units $20,000.00 Cost per Unit $101.00 Therefore, the cost of manufacturing the three wheeled robo is $101.00 per unit. Case-2: Here the Opportunity cost is $300,000. If the company decides to manufacture they will loose and additional income of $300,000. This lost income is an additional cost of continuing to make the robos in the make or buy decision. This opportunity cost is therefore added to the "Make" column for comparision.
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This note was uploaded on 07/28/2011 for the course ACCT 301 taught by Professor Brown during the Spring '11 term at Atlanta Tech.

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Chapter 9 - Carlyle Brown Chapter 9 SY Telc has recently...

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