Assume that none of the fixed overhead can be reduced
Course:- Accounting Basics
Reference No.:- EM13601540

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Assume that none of the fixed overhead can be reduced (avoided) However, if the robots are purchased from Padong Inc. Selleck can use th released productive resources to generate additional income of $321,600.

Selleck has recently started the manufacture of RecRobo, a three wheeled robot that can scan ahome for fires and gas leaks and then transmit this information to a mobile phone. The cost structure to manufacture 20,100 RecRobo's is as follows.

  • Direct materials ( $40 per robot) $804,000
  • Direct labor ($30 per robot) 603,000
  • Variable overhead ($4 per robot ) 80,400
  • Allocated fixed overhead ($25 per robot) 502,500
  • Total 1,989,900

Selleck is approached by Padong Inc. which offers to make RecRobo for $89 per unit or $1,788,900. Use incremental analysis determine whether Selleck should accept this offer under each of the following independent assumptions.
Make buy net income increase/decrease

  • Direct materials
  • Direct labor
  • Variable overhead
  • Fixed overhead
  • Opportunity cost
  • Purchase price
  • Totals
  • Should offer be accepted

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