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(Click the icon to view the outsourcing decision analysis.) BestSystems manufactures an optical switch that it uses in its final product. BestSystems incurred the following
(Click the icon to view the outsourcing decision analysis.) 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: (Click the icon to view the manufacturing costs.) Another company has offered to sell BestSystems the switch for $7.00 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 84,000 optical switches next year (assume same relevant range). By outsourcing them, BestSystems can use its idle facilities to manufacture another product that will contribute $100,000 to operating incom but none of the fixed costs will be avoidable. Should BestSystems make or buy the switches? Show your analysis. i Data Table 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 BestSystems Incremental Analysis for Outsourcing Decision Make Buy Unit Unit Make Product Difference Variable cost per unit: Direct materials Direct labor 8.00 $ 0.00 $ 0.00 Total variable cost of obtaining the optical switches 1.50 Variable overhead 1.00 0.00 0.00 7.00 8.00 1.50 1.00 (7.00) 3.50 Purchase price from outsider Expected net cost of obtaining the optical switches 10.50 $ 7.00 $ Variable cost per unit Print Done Choose from any list or enter any number in the input fields and then click Check Answer. Direct materials 592,000 111,000 Direct labor Variable MOH 74,000 444,000 Fixed MOH 1,221,000 Total manufacturing cost for 74,000 units
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