Question

Homework: Chapter 8 Homework Save Score: 0 of 1 pt 6 of 7 (5 complete) HW Score: 50%, 5 of 10 pts E8-29A (similar to) * Question Help o GlobalSystems manufactures an optical switch that it uses in its final product. (Click the icon to view the outsourcing decision analysis.) GlobalSystems incurred the following manufacturing costs when it produced 69,000 units last year: GlobalSystems needs 79,000 optical switches next year (assume same relevant B (Click the icon to view the manufacturing costs.) range). By outsourcing them, GlobalSystems can use its idle facilities to Another company has offered to sell GlobalSystems the switch for $14.50 per unit. If manufacture another product that will contribute $130,000 to operating income, but GlobalSystems buys the switch from the outside supplier, none of the fixed costs are none of the fixed costs will be avoidable. Should GlobalSystems make or buy the avoidable. The company prepared an outsourcing decision analysis to show the cost switches? Show your analysis. per unit of making the switches versus the cost per unit of buying (outsourcing) the switches. Complete the Best Use of Facilities Analysis. (Enter a "0" for any zero amounts.) GlobalSystems Best Use of Facilities Analysis Buy and Use Facilities for Other Make Product х Total variable cost of obtaining the optical switches Expected net cost of obtaining the optical switches Choose from any list or enter any number in the input fields and then click Check Answer. ? 1 part remaining Clear All Check Answer

Answer 1

Make or Buy Decisions

Particulars Make Buy

Variable Cost

(14.50*79,000) 1,145,500

(11.50*79,000) 908,500

Total Variable Cost 908,500 1,145,500

Extra Benefit from idle capacity 0 (130,000)

Net Cost 908,500 1,015,000

Since net cost is lesser in case of make, hence company shall make the product itself without outsourcing

Since fixed cost is unavoidable, therefore we can ignore the same while doing incremental analysis