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Fiber Systems manufactures an optical switch that it uses in its final product Fiber Systems incurred the following manufacturing costs when it produced 66,000 units last year Click the icon to view the manufacturing costs. Read the requirements Fiber Systems does not yet know how many switches it will need this year, however, another company has offered to sell Fiber Systems the switch for $11,50 per unit. If Fiber Systems buys the switch from the outside supplier, the manufacturing facilities that will be idle cannot be used for any other purpose, yet none of the fixed costs are avoidable Requirement 1. Given the same cost structure should FiberSystems make or buy the switch? Show your analysis. Complete an incremental analysis to show whether FiberSystems should make or buy the switch (Enter a o* for any zero amounts. Round amounts to the nearest cent. Use a minus sign or parentheses when the cost to buy exceeds the cost to make.) Fiber Systems Incremental Analysis for Outsourcing Decision Buy Make Unit Unit Difference Variable cost per unit Total variable cost per unit Decision: because the varlable cost per unit to make the switch is than the variable cost per unit to buy the switch Requirement 2. Now, assume that Fiber Systems can avoid 599,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing FiberSysteme needs 71,000 switches a year rather than 66,000 switches What should the company do now? Complete an outsourcing decision analysis assuming fixed costs can be avoided by outsourcing production and the number of units needed have increased Requirement 2. Now, assume that Fiber Systems can avoid $99,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, Fiber Systems needs 71,000 switches a year rather than 66,000 switches. What should the company do now? Complete an outsourcing decision analysis assuming fixed costs can be avoided by outsourcing production and the number of units needed have increased. Fiber Systems Outsourcing Decision Make Buy switches switches Total relevant costs Total relevant costs Decision: because the total relevant costs to make the switches are than the total relevant costs to buy the switches Requirement 3. Given the last scenario, what is the most FiberSystems would be willing to pay to outsource the switches? Requirement 3. Given the last scenario what is the most Fiber Systems would be willing to pay to outsource the switches? Begin by identifying the basic formula that is used to determine the indifferent outsourcing cost per unit. Cost if making switches Cost if outsourcing switches Using the basic formula you determined above, solve for the outsourcing cost at which FiberSystems would be indifferent between outsourcing and making the switches (Enter your per unit calculation to the nearest cent.) Fiber Systems would be indifferent between outsourcing and making the switches if the outsourcing cost was per switch. Therefore, Systems will only be willing to outsource if the outsourcing cost is per switch A B 1 Direct materials $ 660,000 2 Direct labor 132,000 3 Variable MOH 198,000 4 Fixed MOH 462,000 5 Total manufacturing cost for 66,000 units $ 1,452,000 Print Done
