Tech Systems manufactures an optical switch that it uses in its final product. Another company has...

Transcribed Image Text:

Tech Systems manufactures an optical switch that it uses in its final product. Another company has offered to sell Tech Systems the switch for $14.00 per unit. None of Tech's fixed costs are avoidable. (Click the icon to view the outsourcing decision.) Tech Systems needs 84,000 optical switches. By outsourcing them, Tech Systems can use its idle facilities to manufacture another product that will contribute $217,000 to operating income. Read the requirements. Requirement 1. Identify the expected net costs that Tech Systems will incur to acquire 84,000 switches under three alternative plans. Switch costs Variable costs: Direct materials Direct labor Variable manufacturing overhead Purchase cost Expected profit contribution from the other product Total expected net cost of the optical switches Data table Make Outsource switches Make Facilities Idle Make new product Outsource Difference optical switch optical switch (Make-Outsource) Variable costs: Direct materials $ 7.00 7.00 Direct labor 1.50 1.50 Variable overhead 4.00 4.00 $ 14.00 (14.00) Purchase price from outsider $ 12.50 $ 14.00 $ (1.50) Differential cost per unit Print Done Requirements 1. Identify the expected net costs that Tech Systems will incur to acquire 84,000 switches under three alternative plans: make the switches, buy the switches and leave facilities idle, buy the switches and use the idle facilities to make another product. 2. Which plan makes the best use of Tech System's facilities? Support your answer. Print Done Tech Systems manufactures an optical switch that it uses in its final product. Another company has offered to sell Tech Systems the switch for $14.00 per unit. None of Tech's fixed costs are avoidable. (Click the icon to view the outsourcing decision.) Tech Systems needs 84,000 optical switches. By outsourcing them, Tech Systems can use its idle facilities to manufacture another product that will contribute $217,000 to operating income. Read the requirements. Requirement 1. Identify the expected net costs that Tech Systems will incur to acquire 84,000 switches under three alternative plans. Switch costs Variable costs: Direct materials Direct labor Variable manufacturing overhead Purchase cost Expected profit contribution from the other product Total expected net cost of the optical switches Data table Make Outsource switches Make Facilities Idle Make new product Outsource Difference optical switch optical switch (Make-Outsource) Variable costs: Direct materials $ 7.00 7.00 Direct labor 1.50 1.50 Variable overhead 4.00 4.00 $ 14.00 (14.00) Purchase price from outsider $ 12.50 $ 14.00 $ (1.50) Differential cost per unit Print Done Requirements 1. Identify the expected net costs that Tech Systems will incur to acquire 84,000 switches under three alternative plans: make the switches, buy the switches and leave facilities idle, buy the switches and use the idle facilities to make another product. 2. Which plan makes the best use of Tech System's facilities? Support your answer. Print Done