Prepare an incremental analysis for the make-or-buy decision. E7.21 (LO 3) SY Telc has recently started to manufacture 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 RecRobos is as follows: Direct materials ($35 per robot) Direct labour ($30 per robot) Variable overhead ($10 per robot) Allocated fixed overhead ($25 per robot) Total Cost $ 700,000 600,000 200,000 500,000 $2,000,000 SY Telc is approached by Chen Inc., which offers to make RecRobo for $80 per unit or $1.6 million. Instructions a. Using incremental analysis, determine whether SY Telc should accept this offer under each of the following independent assumptions: 1. Assume that $400,000 of the fixed overhead cost is avoidable. 2. Assume that none of the fixed overhead is avoidable. However, if the robots are purchased from Chen Inc., SY Telc can use the released productive resources to generate additional income of $200,000. b. Describe the qualitative factors that might affect the decision to buy the robots from an outside supplier.
Prepare an incremental analysis for the make-or-buy decision. E7.21 (LO 3) SY Telc has recently started to manufacture 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 RecRobos is as follows: Direct materials ($35 per robot) Direct labour ($30 per robot) Variable overhead ($10 per robot) Allocated fixed overhead ($25 per robot) Total Cost $ 700,000 600,000 200,000 500,000 $2,000,000 SY Telc is approached by Chen Inc., which offers to make RecRobo for $80 per unit or $1.6 million. Instructions a. Using incremental analysis, determine whether SY Telc should accept this offer under each of the following independent assumptions: 1. Assume that $400,000 of the fixed overhead cost is avoidable. 2. Assume that none of the fixed overhead is avoidable. However, if the robots are purchased from Chen Inc., SY Telc can use the released productive resources to generate additional income of $200,000. b. Describe the qualitative factors that might affect the decision to buy the robots from an outside supplier.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Prepare an incremental analysis for the make-or-buy decision.
E7.21 (LO 3) SY Telc has recently started to manufacture 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 RecRobos is as follows:
Direct materials ($35 per robot)
Direct labour ($30 per robot)
Variable overhead ($10 per robot)
Allocated fixed overhead ($25 per robot)
Total
Cost
$ 700,000
600,000
200,000
500,000
$2,000,000
SY Telc is approached by Chen Inc., which offers to make RecRobo for $80 per unit or $1.6 million.
Instructions
a. Using incremental analysis, determine whether SY Telc should accept this offer under each of the
following independent assumptions:
1. Assume that $400,000 of the fixed overhead cost is avoidable.
2. Assume that none of the fixed overhead is avoidable. However, if the robots are purchased
from Chen Inc., SY Telc can use the released productive resources to generate additional
income of $200,000.
b. Describe the qualitative factors that might affect the decision to buy the robots from an outside
supplier.
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