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of 2 Points: 0 of 1 Save Opti Systems manufactures an optical switch that it uses in its final product. Opti Systems incurred the following
of 2 Points: 0 of 1 Save Opti Systems manufactures an optical switch that it uses in its final product. Opti Systems incurred the following manufacturing costs when it produced 79,000 units last year. (Click the icon to view the manufacturing costs.) Another company has offered to sell Opti Systems the switch for $13.80 per unit. Opti Systems prepared an outsourcing decision analysis to show the cost per unit of making the switches versus the cost per unit of buying (outsourcing) the switches. (Click the icon to view the outsourcing decision analysis.) Opti Systems needs 81,000 optical switches next year (assume same relevant range). By outsourcing them, Opti Systems can use its idle facilities to manufacture another product that will contribute $240,000 to operating income, but none of the fixed costs will be avoidable. Should Opti Systems make or buy the switches? Show your analysis. Opti Systems Best Use of Facilities Analysis Total variable cost of obtaining the optical switches Expected net cost of obtaining the optical switches Buy and Use Facilities for Make Other Product X X Manufacturing costs X Direct materials Direct labour Variable overhead Fixed overhead $ 584,600 134,300 I 213,300 460,000 Total manufacturing cost for 79,000 units $ 1,392,200 Variable cost per unit: Direct materials Direct labour Variable overhead Purchase price from outsider Variable cost per unit Opti Systems Outsourcing Decision Make Buy Cost to Make Unit Unit Minus Cost to Buy $ LA 7.40 1.70 2.70 $ 7.40 1.70 2.70 $ 60 13.80 (13.80) $ 11.80 $ 13.80 $ (2.00)
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