CoolSystems manufactures an optical switch that it uses in its final product. CoolSystems incurred the following manufacturing costs when it produced 65,000 units last year: (Click the icon to view the manufacturing costs.) CoolSystems does not yet know how many switches it will need this year; however, another company has offered to sell CoolSystems the switch for $13.50 per unit. If CoolSystems 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. Read the requirements Purchase price from outsider 0.00 13.50 (13.50) S 16.00 $ 13.50 $ 2.50 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 CoolSystems can avoid $97,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, CoolSystems needs 70,000 switches a year rather than 65,000 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. CoolSystems Requirements Outsourcing Decision Make Buy switches switches Variable cost per unit 16.00 13.50 Units needed 97000 97000 1. Given the same cost structure, should CoolSystems make or buy the switch? Show your analysis. 2. Now, assume that CoolSystems can avoid $97,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, CoolSystems needs 70,000 switches a year rather than 65,000 switches. What should the company do now? 3. Given the last scenario, what is the most CoolSystems would be willing to pay to outsource the switches? Total variable costs 1552000 1309500 Fixed costs Total relevant costs Choose from any list or enter any number in the input fields and then click Che Print Done 3 parts 3 Clear All Check Answer remaining CoolSystems manufactures an optical switch that it uses in its final product. CoolSystems incurred the following manufacturing costs when it produced 65,000 units last year: (Click the icon to view the manufacturing costs.) CoolSystems does not yet know how many switches it will need this year; however, another company has offered to sell CoolSystems the switch for $13.50 per unit. If CoolSystems 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. Read the requirements. Data Table Requirement 1. Given the same cost structure, should CoolSystems make or buy the switch? SH Complete an incremental analysis to show whether CoolSystems should make or buy the switch. parentheses when the cost to buy exceeds the cost to make.) CoolSystems Incremental Analysis for Outsourcing Decision Make Buy A B 1 Direct materials $ $ 715,000 130,000 Unit Unit Difference 2 Direct labor 3 Variable MOH 4 Fixed MOH 195,000 422,500 $ 11.00 $ 0.00 $ 11.00 Variable cost per unit: Direct materials Direct labor Variable overhead $ 5 Total manufacturing cost for 65,000 units 1,462,500 2.00 0.00 2.00 3.00 0.00 3.00 Purchase price from outsider 0.00 13.50 Print Done (13.50) 2.50 $ 16.00 $ Total variable cost per unit 13.50 $ 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 CoolSystems can avoid $97,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, CoolSystems needs 70,000 switches a year rather than 65,000 switches. What should the company do now? Choose from any list or enter any number in the input fields and then click Check Answer. ? 3 parts remaining Clear All Check
