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WorldSystems manufactures an optical switch that it uses in its final product. WorldSystems incurred the following manufacturing costs when it produced 73,000 units last year:
WorldSystems manufactures an optical switch that it uses in its final product. WorldSystems incurred the following manufacturing costs when it produced 73,000 units last year: (Click the icon to view the manufacturing costs.) Another company has offered to sell WorldSystems the switch for $12.50 per unit. If WorldSystems buys the switch from the outside supplier, none of the fixed costs are avoidable. The company prepared an outsourcing decision analysis to show the cost per unit of making the switches versus the cost per unit of buying (outsourcing) the switches. 5 Click the icon to view the outsourcing decision analysis.) WorldSystems needs 82,000 optical switches next year (assume same relevant range). By outsourcing them, World Systems can use its idle facilities to manufacture another product that will contribute $150,000 to operating income, but none of the fixed costs will be avoidable. Should WorldSystems make or buy the switches? Show your analysis. Complete the Best Use of Facilities Analysis. (Enter a "0" for any zero amounts.) Data Table World Systems Best Use of Facilities Analysis Buy and Use Direct materials $ Facilities for Other 657,000 Direct labor Make Product 182,500 Variable MOH 219,000 438,000 Fixed MOH x $ 1,496,500 Total variable cost of obtaining the optical switches Total manufacturing cost for 73,000 units Print Done Expected net cost of obtaining the optical switches Data Table World Systems Incremental Analysis for Outsourcing Decision Make Buy Unit Unit Difference Variable cost per unit: Direct materials $ 9.00 $ 0.00 $ 9.00 Direct labor 2.50 0.00 2.50 Variable overhead 3.00 0.00 0.00 12.50 3.00 (12.50) Purchase price from outsider $ 14.50 $ Variable cost per unit 2.00 12.50 $ Print Done
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