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Best Systems manufactures an optical switch that it uses in its final product. Another company has offered to sell Best Systems the switch for
Best Systems manufactures an optical switch that it uses in its final product. Another company has offered to sell Best Systems the switch for $19.00 per unit. None of Best's fixed costs are avoidable. (Click the icon to view the outsourcing decision.) Best Systems needs 84,000 optical switches. By outsourcing them, Best Systems can use its idle facilities to manufacture another product that will contribute $219,000 to operating income. Read the requirements Requirement 1. Identify the expected net costs that Best Systems will incur to acquire 84,000 switches under three alternative plans. Switch costs Variable costs: Direct materials Direct labor Variable manufacturing overhead Purchase cost Expected profit contribution from the other product Total expected net cost of the optical switches Data table Outsource switches Facilities Make new Make Idle product Make Outsource Difference optical switch optical switch (Make-Outsource) Variable costs: Direct materials 10.00 10.00 Direct labor 2.50 2.50 Variable overhead 5,00 5.00 $ 19.00 (19.00) Purchase price from outsider 17.50 $ 19.00 $ (1.50) Differential cost per unit Print Done
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