Answered: Waterway has recently started to…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

Waterway 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 19,900 RecRobos is as follows:

	Cost
Direct materials ($45 per robot)	$895,500
Direct labor ($31 per robot)	616,900
Variable overhead ($8 per robot)	159,200
Allocated fixed overhead ($23 per robot)	457,700
Total	$2,129,300

Waterway is approached by Cinrich Inc., which offers to make RecRobo for $83 per unit or $1,651,700.

Using incremental analysis, determine whether Waterway should accept this offer under this following independent assumption: (see attachement).

In attachement: see dropdown options. Please don't forget to answer: should the offer be accepted or not.

(2) Assume that none of the fixed overhead is avoidable. However, if the robots are purchased from Cinrich Inc., Waterway can use the
released productive resources to generate additional income of $178,600. (If an amount reduces the net income then enter with a negative
sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). While alternate approaches are possible, irrelevant fixed costs should be
included in both options when solving this problem.)
Should the offer be accepted?
$
Make
$
$
Buy
$
$
Net Income
Increase
(Decrease)

Expert Solution

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions