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T i Data Table Direct materials $ 560,000 Direct labor 140,000 Variable MOH 70,000 490,000 Fixed MOH $ Total manufacturing cost for 70,000 units 1,260,000 1. Given the same cost structure, should TechSystems make or buy the switch? Show your analysis. 2. Now, assume that TechSystems can avoid $108,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, TechSystems needs 75,000 switches a year rather than 70,000 switches. What should the company do now? 3. Given the last scenario, what is the most TechSystems would be willing to pay to outsource the switches? TechSystems manufactures an optical switch that it uses in its final product. TechSystems incurred the following manufacturing costs when it produced 70,000 units last year. E (Click the icon to view the manufacturing costs.) Read the fequirements Outsourcing Decision Make Buy switches switches Variable cost per unit 14.50 17.00 Total variable costs 81000 81000 Total relevant costs Tech Systems does not yet know how many switches it will need this year, however, another company has offered to sell Tech Systems the switch for $12.50 per unit. If TechSystems 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. Tech Systems manufactures an optical switch that it uses in its final product. Toch Systems incurred the following manufacturing costs when it produced 70,000 units last year (Click the icon to view the manufacturing costs) TechSystems does not yet know how many switches it will need this year, however, another company has offered to sell Tech Systems the switch for $12.50 per unit. If TechSystems buys the switch from the outside supper 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 Make Buy Unit Unit Difference $ Variable cost per unit Direct materials Direct labor Variable overhead Purchase price from outsider 8.00 $ 2.00 0.00 $ 0.00 0.00 12 50 1.00 8.00 200 100 (1250) (1.50 000 Trial and $ 11.00 $ 12.50 $ Tech Systems manufactures an optical switch that it uses in its final product Tech Systems incurred the following manufacturing costs when it produced 70,000 units last year (Click the icon to view the manufacturing costs) Tech Systems does not yet know how many switches it will need this year, however, another company has offered to sell TechSystems the switch for $12 per unit. If TechSystems buys the switch from the outside supplier the manufacturing facilities that will be idle cannot be used for any other purpose none of the fixed costs are avoidable Read the requirements Decision Make the optical switch because the variable cost per unit to make the switch is less than the variable cost per unit to buy the switch Requirement 2. Now, assume that TechSystems can avoid $108,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, TechSystems needs 75,000 switches a year rather than 70,000 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 Tech Systems Outsourcing Decision Make Buy switches switches Variable cost per unit 1 5.09 Units needed 490000 70000 Total variable costs Total relevant costs
