Jobs, Inc. has recently started the manufacture of Tri-Robo, a three-wheeled robot that can scan a home for fires and gas leaks and then transmit this information to a smartphone. The cost structure to manufacture 20,500 Tri-Robos is as follows. Cost Direct materials ($52 per robot) $1,066,000 Direct labor ($38 per robot) 779,000 Variable overhead ($7 per robot) 143,500 Allocated fixed overhead ($29 per robot) 594,500 Total $2,583,000 Jobs is approached by Tienh Inc., which offers to make Tri-Robo for $116 per unit or $2,378,000.

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this is a differential analysis that compares two alternative situations:

                                     Make              Buy                 Net income increase

                                                                                    (decrease)

materials                     $1,066,000      $0                      $1,066,000

labor                              $779,000       $0                        $779,000

var. overhead                $143,500       $0                         $143,500

fixed overhead             $594,500    ($405,000)            $999,500

purchase price                   $0          $2,378,000         ($2,378,000)

total                            $2,583,000    $1,973,000           $610,000

If Jobs decides to purchase the Tri-Robos from Tienh, and it is able to avoid $405,000 in fixed cots, then its operating income should increase by $610,000.

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