Systems manufactures an optical switch that it uses in its final product. Fibre Systems incurred the following manufacturing costs when it produced 74,000 units last year.
Fibre Systems manufactures an optical switch that it uses in its final product. Fibre Systems incurred the following manufacturing costs when it produced 74,000 units last year: E (Click the icon to view the manufacturing costs.) Fibre Systems does not yet know how many switches it will need this year; however, another company has offered to sell Fibre Systems the switch for $16 per unit. If Fibre 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 Fibre Systems make or buy the switch? Show your analysis. 2. Now, assume that Fibre Systems can avoid $78,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, Fibre Systems needs 79,000 switches a year rather than 74,000. What should Fibre Systems do now? 3. Given the last scenario, what is the most Fibre Systems would be willing to pay to outsource the switches? Requirement 1. Given the same cost structure, should Fibre Systems make or buy the switch? Show your analysis. Complete an incremental analysis to show whether Fibre Systems should make or buy the switch. (If a box is not used in the table, leave the to make minus the cost to buy column should have a value entered.) Manufacturing costs es in the cost Direct materials 740,000 Fibre Systems Outsourcing Decision Make Buy Unit Unit Direct labour. 74,000 Cost to Make Variable overhead 222,000 Minus Cost to Buy Fixed overhead 518,000 Variable cost per unit: 1,554,000 Direct materials Total manufacturing cost for 74,000 units Direct labour Print Done Enter any number in the edit fields and then continue to the next question. ? Make Cost to Make Buy 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 Decision: because the V to make the switch is than the variable cost per unit to buy the switch. Requirement 2. Now, assume that Fibre Systems can avoid $78,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, Fibre Systems needs 79,000 switches a year rather than 74,000. What should Fibre Systems do now? Complete an incremental analysis to calculate relevant costs. Fibre Systems Outsourcing Decision Make Buy switches switches Variable cost per unit Units needed Total variable costs Outsourcing Decision Make Buy switches switches Variable cost per unit Units needed Total variable costs Fixed costs Total relevant costs Decision: because the V to make the switches are V than the total relevant costs to buy the switches. Requirement 3. Given the last scenario, what is the most Fibre Systems would be willing to pay to outsource the switches? (Round your answer to the nearest cent.) Fibre Systems would be indifferent between outsourcing and making the switches if the outsourcing cost was $ per switch. Therefore, Fibre Systems will only be willing to outsource if the outsourcing cost is $ per switch
