GlobalSystems manufactures an optical switch that it uses in its final product. GlobalSystems incurred the following manufacturing costs when it produced 68,000 units last year. (Click the icon to view the manufacturing costs.) Read the requirements GlobalSystems does not yet know how many switches it will need this year; however. another company has offered to sell GlobalSystems the switch for $10.50 per unit. If GlobalSystems 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. Requirement 1. Given the same cost structure, should GlobalSystems make or buy the switch? Show your analysis. Complete an incremental analysis to show whether GlobalSystems should make or buy the switch. (Enter a "0" for any zero amounts. Round amounts to the nearest cent. Use a minus sign or parentheses when the cost to buy exceeds the cost to make.) GlobalSystems Incremental Analysis for Outsourcing Decision Make Buy Unit. Unit Difference Variable cost per unit Direct materials $ 11.00 S 0.00 $ 11.00 Direct labor 2.00 0.00 2.00 Variable overhead 1.00 0.00 1.00 Purchase price from outsider 0.00 10.50 (10.50) 14.00 $ 10.50 $ 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 GlobalSystems can avoid $102,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, GlobalSystems needs 73,000 switches a year rather than 68,000 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. GlobalSystems Outsourcing Decision Make Buy Requirements 1. Given the same cost structure, should GlobalSystems make or buy the switch? Show your analysis. 2. Now, assume that GlobalSystems can avoid $102,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing. GlobalSystems needs 73,000 switches a year rather than 68,000 switches. What should the company do now? 3. Given the last scenario, what is the most GlobalSystems would be willing to pay to outsource the switches? Data table Direct materials 2 Direct labor B S 748,000 136,000 68,000 476,000 5 Total manufacturing cost for 68,000 units $ 1,428,000 3 Variable MOH 4 Fixed MOH Print Done Print Done Requirement 2. Now, assume that GlobalSystems can avoid $102,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, GlobalSystem switches a year rather than 68,000 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. GlobalSystems Outsourcing Decision Total relevant costs Make Buy switches switches