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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 72,000 units last year:
BestSystems manufactures an optical switch that it uses in its final product. BestSystems incurred the following manufacturing costs when it produced 72,000 units last year: (Click the icon to view the manufacturing costs.) Another company has offered to sell BestSystems the switch for $14.50 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 un of making the switches versus the cost per unit of buying (outsourcing) the switches. (Click the icon to view the outsourcing decision analysis.) BestSystems needs 78,000 optical switches next year (assume same relevant range). By outsourcing them, BestSystems can use its idle facilities to manufacture another product that will contribute $140,000 to operating income, but none of the fixed costs will be avoidable. Should BestSystems make or buy the switches? Show your analysis. Complete the Best Use of Facilities Analysis. (Enter a "0" for any zero amounts.) BestSystems Best Use of Facilities Analysis Buy and Use Facilities for Other Total variable cost of obtaining the optical switches Expected net cost of obtaining the optical switches Make Product Data table A B 1 Direct materials $ 648,000 2 Direct labor 108,000 3 Variable MOH 4 Fixed MOH 5 Total manufacturing cost for 72,000 units 144,000 396,000 SA $ 1,296,000 Data table BestSystems Incremental Analysis for Outsourcing Decision Make Unit Buy Unit Difference - Variable cost per unit: Direct materials 9.00 $ 0.00 $ 9.00 Direct labor 1.50 0.00 1.50 Variable overhead 2.00 0.00 2.00 Purchase price from outsider 0.00 14.50 (14.50) 12.50 $ Variable cost per unit 14.50 $ (2.00) Another company has offered to sell BestSystems the switch for $14.50 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. operating income, but BestSystems make or Expected profit contribution from the other product Expected sales price of the other product Fixed unit cost of obtaining the optical switches Variable unit cost of obtaining the optical switches amounts.) Buy and Use Facilities for Other Product Total variable cost of obtaining the optical switches x
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