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BestSystems manufactures an optical switch that it uses in its final product. BestSystems incurred the following manufacturing costs when it produced 69,000 units last year:

BestSystems manufactures an optical switch that it uses in its final product. BestSystems incurred the following manufacturing costs when it produced 69,000 units last year: (Click the icon to view the manufacturing costs.) Read the requirements. BestSystems does not yet know how many switches it will need this year; however, another company has offered to sell BestSystems the switch for $8.50 per unit. If BestSystems 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. Unit Unit Difference Variable cost per unit Purchase price from outsider $ 0.00 $ 8.50 $ (8.50) Direct materials 9.00 0.00 9.00 Direct labor 2.00 0.00 2.00 Variable overhead 1.00 0.00 1.00 S 12.00 $ 8.50 $ 3.50 Total variable cost per unit Decision: Buy the optical switch because the variable cost per unit to make the switch is greater than the variable cost per unit to buy the switch. Requirement 2. Now, assume that BestSystems can avoid $102,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, BestSystems needs 74,000 switches a year rather than 69,000 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. Fixed cost per unit Total variable costs Units needed Variable cost per unit Total relevant costs BestSystems Outsourcing Decision Make Buy switches switches Data table Direct materials Direct labor $ 621,000 138,000 Variable MOH 69,000 Fixed MOH 448,500 $ 1,276,500 Total manufacturing cost for 69,000 units

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