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CoolSystems manufactures an optical switch that it uses in its final product. CoolSystems incurred the following manufacturing costs when it produced 68,000 units last year:
CoolSystems manufactures an optical switch that it uses in its final product. CoolSystems incurred the following manufacturing costs when it produced 68,000 units last year: (Click the icon to view the manufacturing costs.) Another company has offered to sell CoolSystems the switch for $14.00 per unit. If CoolSystems 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 B (Click the icon to view the outsourcing decision analysis.) CoolSystems needs 81,000 optical switches next year (assume same relevant range). By outsourcing them, CoolSystems can use its idle facilities to manufacture another product that will contribute $110,000 to operating income, but none of the fixed costs will be avoidable. Should CoolSystems make or buy the switches? Show your analysis Data Table x Complete the Best Use of Facilities Analysis. (Enter a "0" for any zero amounts.) CoolSystems Best Use of Facilities Analysis Buy and Use Facilities for Other - X Data Table Make Product A B CoolSystems Incremental Analysis for Outsourcing Decision Make Buy Unit Unit 1 Direct materials $ 544,000 Difference 2 Direct labor 68,000 Total variable cost of obtaining the optical switches Variable cost per unit: 3 Variable MOH 136.000 Direct materials $ 8.00 $ 0.00 $ 8.00 4 Fixed MOH 374,000 Direct labor 1.00 0.00 1.00 Expected net cost of obtaining the optical switches $ 5 Total manufacturing cost for 68,000 units 1,122,000 2.00 Variable overhead Purchase price from outsider 2.00 0.00 0.00 14.00 Decision: (14.00) Print Done $ 11.00 $ 14.00 $ Variable cost per unit (3.00) Print Done
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