point swer 3. InteliSystems manufactures an optical switch that it uses in its final product. InteliSystems incurred the following manufacturing costs when it produced 70,000 units last year: Direct materials $ 560,000 Direct labor Variable MOH SS 105,000 $ 70,000 Fixed MOH Total manufacturing cost for 70,000 units $ 455,000 $ 1,190,000 IntelliSystems does not yet know how many switches it will need this year; however, another company has offered to sell InteliSystems the switch for $8.50 per 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 InteliSystems make or buy the switch? Show your analysis. Complete an incremental analysis to show whether InteliSystems should make or buy the switch. (Enter a "0" for any zero amounts. Round amounts to the nearest cent. Use a minus sign or parenthesis when the cost to buy exceeds the cost to make.) InteliSystems Incremental Analysis for Outsourcing Decision Total variable cost per unit Decision: Make Unit Buy Unit Difference because the total relevant costs to make the switches are than the total relevant costs to buy the switches. Requirement 2. Now, assume that InteliSystems can avoid $105,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, InteliSystems 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. InteliSystems Incremental Analysis for Outsourcing Decision Total relevant costs Decision: Make switches Buy switches because the total relevant costs to make the switches are than the total relevant costs to buy the switches. Requirement 3. Given the last scenario, what is the most InteliSystems would be willing to pay to outsource the switches? The basic formula that is used to determine the indifferent outsourcing cost per unit is: Cost if making switches Variable costs + Fixed costs Cost if buying switches Variable costs + Fixed costs Using the basic formula given to you above, solve for the outsourcing and making the switches. (Enter your per unit calculation to the nearest cent.) **Remember to only us RELEVANT costs!! Hint Avoidable fixed costs are the only fixed costs that should be included. InteliSystems would be indifferent between outsourcing and making the switches if the outsourcing cost was equal to the per unit amout to MAKE: Total variable costs Relevant total fixed costs Total costs Divide by units needed Per unit cost to MAKE Make switches