5. CoolSystems manufactures an optical switch that it uses in its final product. CoolSystems incurred the following manufacturing costs when it produced 67,000 units last year:

CoolSystems does not yet know how many switches it will need this year; however, another company has offered to sell CoolSystems the switch for $13.50 per unit. If CoolSystems 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.

Requirements 1. Given the same cost structure, should CoolSystems make or buy the switch? Show your analysis. 2. Now, assume that CoolSystems can avoid $97,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, CoolSystems needs 72,000 switches a year rather than 67,000 switches. What should the company do now? 3. Given the last scenario, what is the most CoolSystems would be willing to pay to outsource the switches? Data table Decision: because the variable cost per unit to make the switch is than the variable cost per unit to buy the switch. Requirement 2. Now, assume that CoolSystems can avoid $97,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, CoolSystems needs 72,000 switches a year rather than 67,000 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