Question

CoolSystems manufactures an optical switch that it uses in its final product. CoolSystems incurred the following manufacturing costs when it produced 70,000 units last year: Ell (Click the icon to view the manufacturing costs.) CoolSystems does not yet know how many switches it will need this year; however, another company has offered to sell CoolSystems the switch for S16.50 per unit. If CoolSystems 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 avoldable Read the requirements. Complete an incremental analysis to show whether CoolSystems should make or buy the switch. (Enter a "O" 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.) CoolSystems Incremental Analysis for Outsourcing Decision Requirements Make Buy Unit Unit Difference 1. Given the same cost structure, should CoolSystems make or buy the switch? Variable cost per unit: Show your analysis Direct materials Direct labor Variable overhead Purchase price from outsider Total variable cost per unit 9.00 $ 1.00 3.00 0.00 13.00 0.00 $ 0.00 0.00 9.00 1.00 3.00 16.50) 2. Now, assume that CoolSystems can avoid $105,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing CoolSystems needs 75,000 switches a year rather than 70,000 switches. What should the company do now? 16.50 3. Given the last scenario, what is the most CoolSystems would be willing to pay to outsource the switches? 16.50 $ Print Done Choose from any list or enter any number in the input fields and then click Check Answer.

Answer 1

Make unit buy unit difference variable cost per unit direct material direct labor variable overheads Purchase price from outsider Total variable cost per unit 16.5 16.5 16.5 3.5 as variable cost per unit for making unit is less than buying it by $3.5 per unit, its reccomended to make units instead of buying it. ce 975000 1237500 -262500 0 105000 1080000 1237500157500 Make unit buy unit differen 2 total variable cost (for 75000 units fixed cost Total cost of 75000 units 105000 otal cost per unit 14.4 16.5 as per unit cost to make is less that to buy, its reccomended to make units instead of buy in this case too 3) maximum outsource price cool system willing to pay will be $14.4 per unit l.e (total cost per unit for make option in answer2)