i Requirements 1. Given the same cost structure, should Fiber Systems make or buy the switch? Show your analysis. 2. Now, assume that Fiber Systems can avoid $110,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, Fiber Systems 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 Fiber Systems would be willing to pay to outsource the switches? Print Done Fiber Systems manufactures an optical switch that it uses in its final product. Fiber Systems incurred the following manufacturing costs when it produced 65,000 units last year: (Click the icon to view the manufacturing costs.) FiberSystems does not yet know how many switches it will need this year, however, another company has offered to sell FiberSystems the switch for $12.00 per unit. If Fiber Systems 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, variable cost per unit: Direct materials Direct labor $ 9.00 S 0.00 $ 9.00 2.00 0.00 2.00 Variable overhead 3.00 0.00 3.00 Purchase price from outsider 0.00 12.00 (12.00) $ 14.00 $ 12.00 $ 2.00 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 FiberSystems can avoid $110,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, Fiber Systems 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. Fiber Systems Data Table Outsourcing Decision Make Buy switches switches Direct materials $ 585,000 Direct labor 130,000 Variable MOH 195,000 Fixed MOH 390,000 $ 1,300,000 Total manufacturing cost for 65,000 units Total relevant costs ELEM Print Done Choose from any list or enter any number in the input fields and then click Check