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Tech Systems manufactures an optical switch that it uses in its final product. Tech Systems incurred the following manufacturing costs when it produced 70,000 units
Tech Systems manufactures an optical switch that it uses in its final product. Tech Systems incurred the following manufacturing costs when it produced 70,000 units last year: (Click the icon to view the manufacturing costs.) TechSystems does not yet know how many switches it will need this year, however, another company has offered to sell TechSystems the switch for $16.00 per unit. If TechSystems buys 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. Read the requirements Total variable cost per unit $ 14.50 $ 16.00 $ (1.50) Decision: Make the optical switch because the variable cost per unit to make the switch is less than the variable cost per unit to buy the switch Requirement 2. Now, assume that TechSystems can avoid $104,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, TechSystems 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. TechSystems Outsourcing Decision Make Buy switches switches Fixed costs Total relevant costs Choose from any list or enter any number in the input fields and then click Check Answer 3 Clear All Check Answer parts remaining 8 of 10 (8 complete) HW SCI o optical switch that it uses in its final product. wing manufacturing costs when it produced TechSystems does not yet know how many s however, another company has offered to sel $16.00 per unit. If TechSystems buys the swi the manufacturing facilities that will be idle ca purpose, yet none of the fixed costs are avoic manufacturing costs.) $ 14.50 $ 16.00 $ (1.50) Data Table cost pe itch be that Ted ds 75,00 In addit V? $ Direct materials mber o ision anal Direct labor 700,000 175,000 140,000 490,000 CechSyste ourcing Variable MOH Fixed MOH $ 1,505,000 Total manufacturing cost for 70,000 units Print Done to) optical switch that it uses in its final product. wing manufacturing costs when it produced TechSystems does not yet know how many however, another company has offered to s $16.00 per unit. If Tech Systems buys the s the manufacturing facilities that will be idle purpose, yet none of the fixed costs are avo manufacturing costs.) 14.50 $ 16.00 $ 11.50 0 Requirements - X vito et ds eisid Tec 1. Given the same cost structure, should TechSystems make or buy the switch? Show your analysis. 2. Now, assume that TechSystems can avoid $104,000 of fixed costs a year by outsourcing production. In additton, because sales are increasing, TechSystems needs 75,000 switches a year rather than 70,000 switches. What should the company do now? 3. Given the last scenario, what is the most TechSystems would be willing to pay to outsource the switches? out Print Done
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