BestSystems manufactures an optical switch that it BestSystems does not yet know how many switches it uses in its final product. BestSystems incurred the will need this year; however, another company has following manufacturing costs when it produced 74,000 offered to sell BestSystems the switch for $17.50 per units last year: unit. If BestSystems buys the switch from the outside (Click the icon to view the manufacturing costs.) supplier, the manufacturing facilities that will be idle cannot be used for any other purpose, yet none of the Read the requirements. fixed costs are avoidable. Requirement 1. Given the same cost structure, should BestSystems make or buy the switch? Show your analysis. Complete an incremental analysis to show whether BestSystems should make or buy the switch. (Enter a "0" 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.) BestSystems Incremental Analysis for Outsourcing Decision Make Buy Unit Unit Difference Variable cost per unit: Direct materials $ 11.00 $ 0.00 $ 11.00 1.50 Direct labor 1.50 0.00 Variable overhead 2.00 0.00 2.00 (17.50) Purchase price from outsider 0.00 17.50 Total variable cost per unit 14.50 $ 17.50 $ (3.00) A B 1 Direct materials $ 814,000 2 Direct labor 111,000 3 Variable MOH 148,000 4 Fixed MOH 481,000 5 Total manufacturing cost for 74,000 units $ 1,554,000 1. Given the same cost structure, should BestSystems make or buy the switch? Show your analysis. 2. Now, assume that BestSystems can avoid $95,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, BestSystems needs 79,000 switches a year rather than 74,000 switches. What should the company do now? 3. Given the last scenario, what is the most BestSystems would be willing to pay to outsource the switches? Requirement 2. Now, assume that BestSystems can avoid $95,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, BestSystems needs 79,000 switches a year rather than 74,000 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. BestSystems Outsourcing Decision Make Buy switches switches Variable cost per unit Units needed Total variable costs Fixed costs Total relevant costs