Essentials of Acct
Essentials of Accounting Week 5 Assignment
Chapter 9:
E9-6
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
1. (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). According to the give information,
Total costs = $800,000 + $600,000 + $120,000 + $5,800,000 = $7,320,000
Total cost per unit = $7,320,000 / 20,000= $366
1. (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. If the Fixed overhead is reduced or avoided by $300,000 then the total cost per unit is calculated as Total cost per unit = $7,020,000 / 20,000= $351
Therefore, the cost of manufacturing the three wheeled robo is $351 per unit. Here the Opportunity cost is $300,000. If the company decides to manufacture they will lose 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 comparison.
Now, calculating the total cost.
Total cost = Total cost + Opportunity cost
= $7,320,000 + $300,000= $7,620,000 Total cost per unit = $7,620,000 / 20,000= $381
Therefore, the cost per unit to manufacture the robos is exceeding. Therefore,
Chapter 9:
E9-6
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
1. (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). According to the give information,
Total costs = $800,000 + $600,000 + $120,000 + $5,800,000 = $7,320,000
Total cost per unit = $7,320,000 / 20,000= $366
1. (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. If the Fixed overhead is reduced or avoided by $300,000 then the total cost per unit is calculated as Total cost per unit = $7,020,000 / 20,000= $351
Therefore, the cost of manufacturing the three wheeled robo is $351 per unit. Here the Opportunity cost is $300,000. If the company decides to manufacture they will lose 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 comparison.
Now, calculating the total cost.
Total cost = Total cost + Opportunity cost
= $7,320,000 + $300,000= $7,620,000 Total cost per unit = $7,620,000 / 20,000= $381
Therefore, the cost per unit to manufacture the robos is exceeding. Therefore,