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QUESTION: Dolar Inc. manufactures robots which vacuum your home. Normal production is 19,900 robots per...

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Accounting

QUESTION:

Dolar Inc. manufactures robots which vacuum your home. Normal production is 19,900 robots per year.

The follow cost information is available:

Direct materials $37.00
Direct labour $25.00
Variable overhead $4.00
Fixed overhead $20.00
Total $86.00

Fixed overhead is allocated to the cost of the product using normal production.

Dolar Inc. has been approached by Techman Ltd. who offer to make the robots for $72.00 per unit. If Dolar Inc. outsources the production of the robots they can use their production resources to generate additional income of $108,800.

None of the fixed costs would be eliminated if Dolar Inc. outsourced the production of the robots.

Using the above information answer the following questions.

If Dolar Inc. decides to buy the robots from Techman Ltd. would their operating income increase or decrease?

Enter the letter A for increase.

Enter the letter B for decrease.

By how much will operating income increase or decrease by if Dolar Inc. purchased the robots from Techman Ltd.?

Enter your answer as a positive number.

Should Elsie Inc. make or buy the robots?

Enter the letter A for make.

Enter the letter B for buy.

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