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Determine whether bonita should accept this offer

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Reference no: EM133147994

Question - Bonita 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 ($46 per robot)

$915,400

Direct labour ($34 per robot)

676,600

Variable overhead ($4 per robot)

79,600

Allocated fixed overhead ($22 per robot)

437,800

Total

$2,109,400

Bonita is approached by Kennel Inc., which offers to make RecRobo for $82 per unit or $1,631,800.

Using incremental analysis, determine whether Bonita should accept this offer under each of the following independent assumptions:

(1) Assume that $278,600 of the fixed overhead cost is avoidable.

(2) Assume that none of the fixed overhead is avoidable. However, if the robots are purchased from Kennel Inc., Bonita can use the released productive resources to generate additional income of $178,600.

Reference no: EM133147994

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