GlobalSystems manufactures an optical switch that it uses in its final product. GlobalSystems incurred the following

manufacturing costs when it produced $67,000$ units last year:

$($Click the icon to view the manufacturing costs.$)$

GlobalSystems does not yet know how many switches it will need this year; however, another company has offered to sell

GlobalSystems the switch for $$8\mathrm{.}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.

GlobalSystems

Incremental Analysis for Outsourcing Decision

Variable cost per unit:

$$

Total variable cost per unit

Total variable cost per unit

Data table

Requirements

Given the same cost structure, should GlobalSystems make or buy the switch?

Show your analysis.

Now, assume that GlobalSystems can avoid $$97,000$ of fixed costs a year by

outsourcing production. In addition, because sales are increasing,

GlobalSystems needs $72,000$ switches a year rather than $67,000$ switches.

What should the company do now?

Given the last scenario, what is the most GlobalSystems would be willing to pay

to outsource the switches?