Answered: Waterway has recently started to…

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter13: Nonlinear Optimization Models

Section: Chapter Questions

Problem 4P: The profit function for two products is: Profit3x12+42x13x22+48x2+700, where x1 represents units of...

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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.

(1) Assume that $278,600 of the fixed overhead cost is avoidable. (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.)
Direct materials
Direct labour
Variable overhead
Fixed overhead
Purchase price
Total annual cost
Make
$
Buy
$
$
Net Income
Increase
(Decrease)

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