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Root Systems manufactures an optical switch that it uses in its final product. Root Systems incurred the following manufacturing costs when it produced 76,000
Root Systems manufactures an optical switch that it uses in its final product. Root Systems incurred the following manufacturing costs when it produced 76,000 units last year: (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 $11.40 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 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. (Round your answers to the nearest cent. All boxes in the Cost to Make Minus Cost to Buy column should have a value entered.) Root Systems Outsourcing Decision Make Unit Cost to Make Minus Buy Unit Cost to Buy Manufacturing costs Variable cost per unit: Direct materials Direct labour Variable overhead Purchase price from outsider Total variable cost per unit Direct materials. 668,800 Direct labour... 98,800 Variable overhead 159,600 Fixed overhead 445,000 $ 1,372,200 Total manufacturing cost for 76,000 units
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