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Opti Systems manufactures an optical switch that it uses in its final product. Another company has offered to sell Opti Systems the switch for $22.00
Opti Systems manufactures an optical switch that it uses in its final product. Another company has offered to sell Opti Systems the switch for $22.00 per unit. None of Opti's fixed costs are avoidable. Opti Systems needs 78,000 optical switches. By outsourcing them, Opti Systems can use its idle facilities to manufacture another product that will contribute $218,000 to operating income. (Click the icon to view the outsourcing decision.) Read the requirements i Data Table Requirement 1. Identify the expected net costs that Opti Systems will incur to acquire 78,000 switches under three alternative plans. Outsource switches Make new Facilities Make Outsource Difference Switch costs Make Idle product optical switch optical switch (Make-Outsource) Variable costs: Variable costs: Direct materials 7.00 Direct materials 7.00 Direct labor Direct labor 4.00 4.00 Variable manufacturing overhead Variable overhead 9.00 9.00 Purchase cost 22.00 (22.00) Purchase price from outsider Expected profit contribution from the other product 20.00 $ 22.00 $ (2.00) Differential cost per unit Total expected net cost of the optical switches
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