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5. CoolSystems manufactures an optical switch that it uses in its final product. CoolSystems incurred the following manufacturing costs when it produced 67,000 units last year Click the icon to view the manufacturing costs.) Read the requirements 10 CoolSystems does not yet know how many switches it will need this year, however, another company has offered to sell CoolSystems the switch for $15.00 per unit. If CoolSystems 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 CoolSystems make or buy the switch? Show your analysis. Complete an incremental analysis to show whether CoolSystems 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.) CoolSystems Incremental Analysis for Outsourcing Decision Make Buy Unit Unit Difference Variable cost per unit: (1) (2) (3) (4) Total variable cost per unit Decision: (5) because the variable cost per unit to make the switch is (6) variable cost per unit buy switch Requirement 2. Now, assume that CoolSystems can avoid $110,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, CoolSystems needs 72,000 switches a year rather than 67,000 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. CoolSystems Outsourcing Decision Make Buy switches switches (7) (8) (9) (10) Total relevant costs Decision: (11) because the total relevant costs to make the switches are (12) than the total relevant costs to buy the switches. Requirement 3. Given the last scenario, what is the most CoolSystems 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 Cost if making switches (13) Cost if outsourcing switches (14) Using the basic formula you determined above, solve for the outsourcing cost at which CoolSystems would be indifferent between outsourcing and making the switches. (Enter your per unit calculation to the nearest cent.) CoolSystems 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 (15) per switch 9: Data Table $ Direct materials Direct labor 603,000 67.000 Variable MOH 201,000 Fixed MOH 402.000 1,273,000 Total manufacturing cost for 67,000 units 10: Requirements 1. Given the same cost structure, should CoolSystems make or buy the switch? Show your analysis. 2. Now, assume that CoolSystems can avoid $110,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, CoolSystems needs 72,000 switches a year rather than 67,000 switches. What should the company do now? 3. Given the last scenario, what is the most CoolSystems would be willing to pay to outsource the switches? (4) (1) O O Direct labor O Direct materials O Fixed overhead O Purchase price from outsider O Sales price O Variable overhead (2) O O Purchase price from outsider O Direct labor O Sales price Direct materials o Variable overhead O Fixed overhead (5) O Buy the optical switch O Make the optical switch (3) O O Direct labor O Direct materials O Fixed overhead O Purchase price from outsider O Sales price O Variable overhead O Purchase price from outsider O Sales price O Variable overhead O Direct labor Direct materials O Fixed overhead (6) O less O greater (7) O O Contribution margin per unit O Fixed costs O Fixed cost per unit O Total variable costs O Units needed O Variable cost per unit (8) O O Total variable costs O Contribution margin per unit Units needed O Fixed costs O Variable cost per unit O Fixed cost per unit (9) O O Contribution margin per unit O Fixed costs O Fixed cost per unit O Total variable costs Units needed O Variable cost per unit (10) O O Contribution margin per unit O Fixed costs O Fixed cost per unit Total variable costs O Units needed O Variable cost per unit (11) O Buy the optical switch Make the optical switch (12) O less O greater (13) O O Direct materials + Direct labor Direct materials + Direct labor + Variable costs O Sales revenue - Fixed costs O Sales revenue - Total costs O Sales revenue - Variable costs O Variable costs + Fixed costs (14) O O Direct materials + Direct labor O Direct materials + Direct labor + Variable costs O Sales revenue - Fixed costs O Sales revenue - Total costs O Sales revenue - Variable costs O Variable costs + Fixed costs (15) O O equal O greater than O less than