GlobalSystems manufactures an optical switch that it uses in its final product. GlobalSystems incurred the following manufacturing costs when it produced 65,000 units last year: EEB (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 $15.50 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 Read the requirements 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 "O" 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 Unit Buy Difference Unit Variable cost per unit: Total variable cost per unit Decision Vbecause the variable cost per unit to make the switch is V than the variable cost per unit to buy the switch Requirement 2. Now, assume that GlobalSystems can avoid $105,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, GlobalSystems 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 GlobalSystems Outsourcing Decision Make Buy switches switches Total relevant costs Decision Requirement 3. Given the last scenario, what is the most GlobalSystems would be willing to pay to outsource the switches? Begin by identifying the basic formula that is used to determine the indifferent outsourcing cost per unit. | because the total relevant costs to make the switches are | than the total relevant costs to buy the switches. Cost if making switches Cost if outsourcing switches Using the basic formula you determined above, solve for the outsourcing cost at which GlobalSystems would be indifferent between outsourcing and making the switches. (Enter your per unit calculation to the nearest cent.) GlobalSystems would be indifferent between outsourcing and making the switches if the outsourcing cost was $ per switch. Therefore, Systems will only be willing to outsource if the outsourcing cost is per switch. ities thef anu Data Table balS $585,000 130,000 65,000 455,000 $1,235,000 Direct materials Direct labor Variable MOH Fixed MOH Total manufacturing cost for 65,000 units rcin Print Done Requirements 1 1. Given the same cost structure, should GlobalSystems make or buy the switch? Show your analysis. 2. Now, assume that GlobalSystems can avoid $105,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, GlobalSystems 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 GlobalSystems would be willing to pay to outsource the switches
