6. BestSystems manufactures an optical switch that it uses in its final product. BestSystems incurred the following manufacturing costs when it produced 74,000 units last year:

Another company has offered to sell BestSystems the switch for $10.50 per unit. If BestSystems buys the switch from the outside supplier, none of the fixed costs are avoidable. The company prepared an outsourcing decision analysis to show the cost per unit of making the switches versus the cost per unit of buying (outsourcing) the switches.

BestSystems needs 79,000 optical switches next year (assume same relevant range). By outsourcing them, BestSystems can use its idle facilities to manufacture another product that will contribute $210,000 to operating income, but none of the fixed costs will be avoidable. Should BestSystems make or buy the switches? Show your analysis.

7. Dairymaid processes organic milk into plain yogurt. Dairymaid sells plain yogurt to hospitals, nursing homes, and restaurants in bulk, one-gallon containers. Each batch, processed at a cost of $810, yields 750 gallons of plain yogurt. The company sells the one-gallon tubs for $5.00 each and spends $0.12 for each plastic tub. Dairymaid has recently begun to reconsider its strategy. Management wonders if it would be more profitable to sell individual-sized portions of fruited organic yogurt at local food stores. Dairymaid could further process each batch of plain yogurt into 16,000 individual portions (3/4 cup each) of fruited yogurt. A recent market analysis indicates that demand for the product exists. Dairymaid would sell each individual portion for $0.54. Packaging would cost $0.07 per portion, and fruit would cost $0.11 per portion. Fixed costs would not change. Should Dairymaid continue to sell only the gallon-sized plain yogurt (sell as is) or convert the plain yogurt into individual-sized portions of fruited yogurt (process further)? Why?

\begin{tabular}{l|l|r|} & \multicolumn{1}{|c|}{ A } & \multicolumn{1}{|c|}{ B } \\ \hline 1 & Direct materials & $ \\ \hline 2 & Direct labor & 740,000 \\ \hline 3 & Variable MOH & 222,000 \\ \hline 4 & Fixed MOH & 407,000 \\ \hline 5 & Total manufacturing cost for 74,000 units & $1,443,000 \\ \hline \end{tabular} BestSystems Incremental Analysis for Outsourcing Decision alculate the net benefit per batch under each alternative. (Enter a "0" for any zero amounts. Round the net benefit per atch to the nearest whole dollar.) \begin{tabular}{llll} \multicolumn{1}{c}{ BestSystems } \\ \hline Best Use of Facilities Analysis \\ \hline Nariable unit cost of obtaining the optical switches \end{tabular}