Root Systems manufactures an optical switch that it uses in its final product. Root Systems incurred the following manufacturing costs when it produced 71,000 units last year: B (Click the icon to view the manufacturing costs.) Root Systems does not yet know how many switches it will need this year; however, another company has offered to sell Root Systems the switch for $10 per unit. If Root Systems buys the switch from the outside supplier, the manufacturing facilities that become idle cannot be used for any other purpose, yet none of the fixed costs are avoidable. Requirements 1. Given the same cost structure, should Root Systems make or buy the switch? Show your analysis. 2. Now, assume that Root Systems can avoid $86,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, Root Systems needs 76,000 switches a year rather than 71,000. What should Root Systems do now? 3. Given the last scenario, what is the most Root Systems would be willing to pay to outsource the switches? Requirement 1. Given the same cost structure, should Root Systems make or buy the switch? Show your analysis. Complete an incremental analysis to show whether Root Systems should make or buy the switch. (If a box is not used in the table, leave the box empty; do not enter a zero. Round your answers to the nearest cent. All boxes in the cost to make minus the cost to buy column should have a value entered.) Root Systems Outsourcing Decision Make Buy Cost to Make Unit Unit Minus Cost to Buy Variable cost per unit: Direct materials Direct labour Variable overhead Purchase price from outsider Total variable cost per unit Root Systems manufactures an optical switch that it uses in its final product. Root Systems incurred the following manufacturing costs when it produced 71,000 units last year: B (Click the icon to view the manufacturing costs.) Root Systems does not yet know how many switches it will need this year; however, another company has offered to sell Root Systems the switch for $10 per unit. If Root Systems buys the switch from the outside supplier, the manufacturing facilities that become idle cannot be used for any other purpose, yet none of the fixed costs are avoidable. Requirements 1. Given the same cost structure, should Root Systems make or buy the switch? Show your analysis. 2. Now, assume that Root Systems can avoid $86,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, Root Systems needs 76,000 switches a year rather than 71,000. What should Root Systems do now? 3. Given the last scenario, what is the most Root Systems would be willing to pay to outsource the switches? Requirement 1. Given the same cost structure, should Root Systems make or buy the switch? Show your analysis. Complete an incremental analysis to show whether Root Systems should make or buy the switch. (If a box is not used in the table, leave the box empty; do not enter a zero. Round your answers to the nearest cent. All boxes in the cost to make minus the cost to buy column should have a value entered.) Root Systems Outsourcing Decision Make Buy Cost to Make Unit Unit Minus Cost to Buy Variable cost per unit: Direct materials Direct labour Variable overhead Purchase price from outsider Total variable cost per unit
