InteliSystems manufactures an optical switch that it uses in its final product. InteliSystems incurred the following manufacturing costs when it produced 70,000 units last year: (Click the icon to view the manufacturing costs.) Read the requirements. Data table A B 1 Direct materials $ 700,000 2 Direct labor 3 Variable MOH 4 Fixed MOH 140,000 210,000 385,000 5 Total manufacturing cost for 70,000 units $ 1,435,000 Print Done InteliSystems does not yet know how many switches it will need this year; however, another company has offered to sell InteliSystems the switch for $16.50 per unit. If InteliSystems 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. Requirements 1. Given the same cost structure, should InteliSystems make or buy the switch? Show your analysis. 2. Now, assume that InteliSystems can avoid $108,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, InteliSystems 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 InteliSystems would be willing to pay to outsource the switches? Print Done - Requirement 1. Given the same cost structure, should BestSystems make or buy the switch? Show your analysis. Complete an incremental analysis to show whether BestSystems should make or buy the switch. (Enter a "0" for any zero amounts. Round amounts to the nearest cent. Use a minus sign or parentheses when the cost to buy exceeds the cost to make.) BestSystems Incremental Analysis for Outsourcing Decision Make Unit Buy Unit Difference Variable cost per unit: Direct materials 9.00 $ 0.00 9.00 Direct labor 2.50 0.00 2.50 Variable overhead 1.00 0.00 1.00 0.00 11.00 Purchase price from outsider (11.00) $ 12.50 $ 11.00 $ 1.50 Total variable cost per unit Decision: Buy the optical switch because the variable cost per unit to make the switch is greater than the variable cost per unit to buy the switch. Requirement 2. Now, assume that BestSystems can avoid $105,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, BestSystems needs 78,000 switches a year rather than 73,000 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. BestSystems Outsourcing Decision Make switches Buy switches Variable cost per unit $ 12.50 $ 11.00 Units needed 78,000 78,000 Total variable costs 975,000 858,000 Fixed costs 401,500 296,500 1,376,500 $ 1,154,500 Total relevant costs Decision: Buy the optical switch because the total relevant costs to make the switches are greater than the total relevant costs to buy the switches. InteliSystems manufactures an optical switch that it uses in its final product. InteliSystems incurred the following manufacturing costs when it produced 70,000 units last year: (Click the icon to view the manufacturing costs.) Read the requirements. Data table A B 1 Direct materials $ 700,000 2 Direct labor 3 Variable MOH 4 Fixed MOH 140,000 210,000 385,000 5 Total manufacturing cost for 70,000 units $ 1,435,000 Print Done InteliSystems does not yet know how many switches it will need this year; however, another company has offered to sell InteliSystems the switch for $16.50 per unit. If InteliSystems 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. Requirements 1. Given the same cost structure, should InteliSystems make or buy the switch? Show your analysis. 2. Now, assume that InteliSystems can avoid $108,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, InteliSystems 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 InteliSystems would be willing to pay to outsource the switches? Print Done -